How many shares will Luther Logistics Firm have outstanding after the repurchase?
The correct option 'After the repurchase the Luther outstanding shares will be' is B. 1.1 billion. First, we need to calculate the current market value of Luther's equity, which is: 1.25 billion shares x $20 per share = $25 billion. Then, we need to subtract the $5 billion cash that Luther plans to use for the stock repurchase: $25 billion - $5 billion = $20 billion. Now, we need to add the value of the employee stock options to this amount: $20 billion + $2 billion = $22 billion. Finally, we can calculate the new number of shares outstanding by dividing the total equity value by the current stock price: $22 billion / $20 per share = 1.1 billion shares. Therefore, the answer is B. 1.1 billion.
Calculating Luther's Outstanding Shares
To calculate Luther Logistics Firm's outstanding shares after the repurchase, we first need to determine the current market value of the firm's equity. This can be calculated by multiplying the number of shares outstanding by the current stock price. In this case, Luther has 1.25 billion shares outstanding and the shares are trading at $20 per share, resulting in a total equity value of $25 billion.
Next, we need to consider the cash Luther plans to use for the stock repurchase, which is $5 billion. By subtracting this cash from the total equity value, we are left with $20 billion.
In addition to the common shares outstanding, Luther has stock options given to employees valued at $2 billion. Adding this value to the equity amount, we get a total of $22 billion.
To find out the new number of shares outstanding after the repurchase, we divide the total equity value by the current stock price. This calculation results in 1.1 billion shares, which will be Luther Logistics Firm's outstanding shares after the repurchase.