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Evaluate the decision to repurchase shares

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Reference no: EM133102329

Question - Eduwize Ltd is a comprehensive, listed and accredited education provider that owns a variety of educational institutions from preschools to universities, offering qualifications up to master's degree level. The company has been listed for many years now and the original owners and management own a substantial portion of the issued shares. Recently, the management of the company has felt that the current market price of its shares of R100 is lower than they believe the company to be worth. There has also been market activity that suggests that a competitor is gearing up to attempt a takeover of Eduwize.

The company currently has the following balances on its statement of financial position:

Cash R4 billion

Total other assets R2 billion

Stated capital R100 million

Retained earnings R3 billion

Total liabilities R1 billion

The management of the company wants to initiate a general share buyback in order to repurchase as many shares as possible in the open market with R1 billion of its retained earnings. Each share would be purchased for R110 in the open market. The company currently has 100 million shares outstanding of which the management and original owners together own 41%, of which none will be bought in the process.

Required - Evaluate the decision to repurchase shares. Provide a brief report on how the repurchase will affect the control (current and potential future) of the company as well as its profitability (ROE and EPS) and future financing opportunities.

Reference no: EM133102329

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