Easy Book value ? always, current, reading, increase, otherwise

SkipE99

If you use cash to buy back shares and pay over current book value, the resuting book value (post buy back) will be...

Higher
Lower

?

I always thought if you pay over book for shares in the market, then resulting book will be LOWER, but I'm reading otherwise in BSSA answer key that BV will increase.

Thanks.

spreads

I am sure BSAS is incorrect

kingstongal

Paying Over Book Value makes Book Value rise.

That's because the denominator ( shares ) is worth more to extinguish than to hold.


Drop in denominator is higher than drop in numerator ( Book value drop owing to repurchase). So the BVPS rises

senlinlang

Not sure what you are talking about.

If share repurchase price > BVPS

BVPS falls, after the repurchase.

Not sure at all....

please check out pg 158-159 of Corp Fin for examples of this.

CP

profil

cpk , you are right . I had it exactly backwards. BVPS will drop if yu pay more than book value to repurchase shares

MiniMe7

Well, isn't the denominator in the BVPS the number of shares? That doesn't change since they paid cash for the acquired company...

Maybe this is simplistic, but

new BV = old BV -cash paid +acquired BV.

That's how I would think about it.

flyinggirl

If BVPS < Market Price, a repurchase will decrease book value.

If BVPS > Market Price, a repurchase will increase book value.

NO EXCUSES

b_sea93

I agree, it's all over CFAI and Schweser.

MV > BV, a repurchase will DECREASE book value. Is the almighty BSAS wrong?

Newhuman

my bad... did not read it right.

CP



Edited 1 time(s). Last edit at Saturday, May 29, 2010 at 07:32PM by cpk123.