Answer to Question #92130 in Economics for Nadine

Question #92130

Rabulani Ltd recently had better than expected earnings which it does not expect to achieve
again.
The company wants to distribute 90% of the earnings available to common shareholders for
the year through a share repurchase at the current share price, instead of a paying out a
dividend. The buy-back will be offset against retained earnings, which comprises the bulk of
the company’s equity. The company currently has 10 000 000 shares outstanding trading at
R5 each, R60 000 000 in total assets (including the earnings available to common
shareholders for the year), R20 000 000 in total liabilities and earnings available to common
shareholders is R5 000 000. None of the shares of the company’s largest shareholder, which
holds 4 550 001 shares, will be bought back.
Determine how many shares will be bought back and choose the nearest option below.
a. 900 000
b. 1000 000
c. 5000 000
d. 9100 000

Expert's answer

A. 900,000 shares