Chartered Financial Analyst Level 2

Calculation Explanation

Given Information:

• Share price: $50
• Shares outstanding: 100 million
• Book value of equity: $6,000 million
• Buyback amount: $400 million

Step 1: Calculate shares repurchased

• Shares repurchased = Buyback amount / Share price
• Shares repurchased = $400 million /$50 = 8 million shares

Step 2: Calculate remaining shares after buyback

• Remaining shares = Initial shares - Shares repurchased
• Remaining shares = 100 million - 8 million = 92 million shares

Step 3: Calculate new book value of equity

• New book value = Initial book value - Buyback amount
• New book value = $6,000 million -$400 million = $5,600 million

Step 4: Calculate new book value per share

• New BVPS = New book value / Remaining shares
• New BVPS = $5,600 million / 92 million =$60.87

Step 5: Compare to options

• $60.87 is closest to$61 (Option B)

Wait, let me double-check the calculation:

• Initial BVPS = $6,000 million / 100 million =$60
• After buyback: $5,600 million / 92 million =$60.87 ≈ $61

Therefore, the book value per share after the transaction will be closest to $61 (Option B).