In the previous problem, suppose Severn Trent plc has announced it is going to repurchase £1 billion worth of equity. What effect will this transaction have on the equity of the firm? How many shares will be outstanding? What will the price per share be after the repurchase? Ignoring tax effects, show how the share repurchase is effectively the same as a cash dividend.

Data from Previous problem

Regular Dividends The balance sheet for Severn Trent plc is shown here in market value terms. There are 2.4 billion shares outstanding.

The company has declared a dividend of £0.40 per share. 

Transcribed Image Text:

Market Value Balance Sheet (m) 5,045 Equity 4,022 5,526 Liabilities 6,549 10,571 Total 10,571 Cash Non-current assets Total