{"id":2226,"date":"2019-09-12T17:42:00","date_gmt":"2019-09-12T17:42:00","guid":{"rendered":"https:\/\/analystprep.com\/cfa-level-1-exam\/?p=2226"},"modified":"2026-03-19T20:12:49","modified_gmt":"2026-03-19T20:12:49","slug":"effect-share-repurchase-book-value-per-share","status":"publish","type":"post","link":"https:\/\/analystprep.com\/cfa-level-1-exam\/corporate-finance\/effect-share-repurchase-book-value-per-share\/","title":{"rendered":"Effect of a Share Repurchase on Book Value Per Share"},"content":{"rendered":"\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"QAPage\",\n  \"mainEntity\": {\n    \"@type\": \"Question\",\n    \"name\": \"BVPS after share repurchase and its effect\",\n    \"text\": \"A company plans to repurchase 100,000 of its shares. The following information is provided:\\n\\nMarket price per share: $8.00\\nNumber of shares outstanding: 1,000,000\\nShareholders\u2019 equity: $6,000,000\\nBook value per share: $6.00\\n\\nWhat is the BVPS after the repurchase, and does it increase, decrease, or remain unchanged?\\n\\nA. BVPS: $5.78; decrease\\n\\nB. BVPS: $6.34; increase\\n\\nC. BVPS: $6.00; unchanged\",\n    \"answerCount\": 1,\n    \"acceptedAnswer\": {\n      \"@type\": \"Answer\",\n      \"text\": \"The correct answer is A.\\n\\nCost of repurchase = 100,000 \u00d7 8.00 = 800,000.\\n\\nNew equity = 6,000,000 \u2212 800,000 = 5,200,000.\\nNew shares outstanding = 1,000,000 \u2212 100,000 = 900,000.\\n\\nBVPS = 5,200,000 \/ 900,000 = 5.78.\\n\\nSince 5.78 is less than the original BVPS of 6.00, BVPS decreases.\"\n    }\n  }\n}\n<\/script>\n\n\n<p>Book value per share (BVPS) refers to a company\u2019s total shareholders\u2019 equity divided by the total number of outstanding shares.<\/p>\n<p>A share repurchase can impact a company\u2019s BVPS. It is important to note what the impact of\u00a0 BVPS is given that it is used in the computation of the price to book value ratio, which is a popular metric used in equity valuation.<\/p>\n<h2><strong>How Share Repurchases Impact BVPS<\/strong><\/h2>\n<p>A company\u2019s book value per share will increase after a share repurchase only if the market price per share was lower than the book value per share prior to the repurchase.<\/p>\n<p>Likewise, a company\u2019s book value per share will decrease after a share repurchase if the market price per share was higher than the book value per share prior to the repurchase.<\/p>\n<h2><strong>Calculating the Effect of Share Repurchases on BVPS<\/strong><\/h2>\n<p>An example will help explain this concept clearly.<\/p>\n<p>Assume that the information in the table below is relevant to a company which is about to embark on a share repurchase:<\/p>\n<table width=\"330\">\n<tbody>\n<tr>\n<td width=\"192\">Market price per share:<\/td>\n<td width=\"138\">$10.00<\/td>\n<\/tr>\n<tr>\n<td width=\"192\">No. of shares outstanding<\/td>\n<td width=\"138\">1,000,000<\/td>\n<\/tr>\n<tr>\n<td width=\"192\">Shareholders\u2019 Equity<\/td>\n<td width=\"138\">$15,000,000.00<\/td>\n<\/tr>\n<tr>\n<td width=\"192\">Book value per share<\/td>\n<td width=\"138\">$15.00<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>If the company buys back 100,000 shares at the market price, it will spend 100,000 x $10.00 = $1,000,000 on the share repurchase.<\/p>\n<p><u>After the share repurchase<\/u>&#8211;<\/p>\n<p>The company will then have 1,000,000 \u2013 100,000 = 900,000 outstanding shares.<\/p>\n<p>Shareholders\u2019 equity or book value will become $15,000,000 &#8211; $1,000,000 = $14,000,000.<\/p>\n<p>And, book value per share, BVPS will = $14,000,000\/900,000 = $15.56.<\/p>\n<p>You can observe that since the market price per share &lt; BVPS prior to the share repurchase; BVPS has increased from $10.00 to $15.56 after the repurchase.<\/p>\n<blockquote>\n<h2><strong>Question<\/strong><\/h2>\n<p>You are given the information in the table below for a company which intends to repurchase 100,000 of its shares. What is its BVPS after the repurchase and does its value increase, decrease or remain unchanged?<\/p>\n<table width=\"330\">\n<tbody>\n<tr>\n<td width=\"192\">Market price per share:<\/td>\n<td width=\"138\">$8.00<\/td>\n<\/tr>\n<tr>\n<td width=\"192\">No. of shares outstanding<\/td>\n<td width=\"138\">1,000,000<\/td>\n<\/tr>\n<tr>\n<td width=\"192\">Shareholders\u2019 Equity<\/td>\n<td width=\"138\">$6,000,000.00<\/td>\n<\/tr>\n<tr>\n<td width=\"192\">Book value per share<\/td>\n<td width=\"138\">$6.00<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>A. BVPS: $5.78; Change in BVPS: decrease<\/p>\n<p>B. BVPS: $6.34; Change in BVPS:\u00a0increase<\/p>\n<p>C. BVPS: $6.00; Change in BVPS:\u00a0unchanged<strong>\u00a0<\/strong><\/p>\n<p><strong>Solution:<\/strong><\/p>\n<p>The correct answer is A.<\/p>\n<p>If the company buys back 100,000 shares at the market price, it will spend 100,000 x $8.00 = $800,000 on the share repurchase.<\/p>\n<p><u>After the share repurchase<\/u>&#8211;<\/p>\n<p>The company will have 1,000,000 \u2013 100,000 = 900,000 outstanding shares.<\/p>\n<p>Book value = $6,000,000 &#8211; $800,000 = $5,200,000.<\/p>\n<p>BVPS = $5,200,000\/900,000 = $5.78.<\/p>\n<p>Since $5.78 &lt; $6.00, BVPS has decreased.<\/p>\n<\/blockquote>\n<p><em>Reading 38 LOS 38e:<\/em><\/p>\n<p><em>Calculate the effect of a share repurchase on book value per share<\/em><\/p>\n<div class=\"notes_inv\">\n<hr \/>\n<p><a href=\"https:\/\/analystprep.com\/cfa-level-1-exam\/corporate-finance\/learning-sessions-curriculum-corporate-finance\/\"><em>Corporate Finance &#8211; Learning Sessions<\/em><\/a><\/p>\n<\/div>","protected":false},"excerpt":{"rendered":"<p>Book value per share (BVPS) refers to a company\u2019s total shareholders\u2019 equity divided by the total number of outstanding shares. A share repurchase can impact a company\u2019s BVPS. It is important to note what the impact of\u00a0 BVPS is given&#8230;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[6],"tags":[],"class_list":["post-2226","post","type-post","status-publish","format-standard","hentry","category-corporate-finance","blog-post","no-post-thumbnail","animate"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.9 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Share Repurchase &amp; Book Value per Share | CFA Level 1<\/title>\n<meta name=\"description\" content=\"Book value per share (BVPS) is shareholders\u2019 equity divided by outstanding shares. 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