The new price per share is $3 if the firm uses $12 million to repurchase shares since demand will drive up the price after the repurchase.
A share repurchase occurs when a company buys back its shares from the stock market.
The shares may be repurchased at a discount or premium.
When the share repurchase is completed, the demand for the shares normally increases, thereby driving the price up.
Assets value = $75 million
Cash balance = $12 million
Outstanding shares = 25 million
Current price per share = $3 ($75 million/25 million)
Repurchase of shares = $12 million
Number of shares repurchased = 4 million ($12 million/$3)
New total assets = $63 million ($75 - $12 million)
New shares outstanding = 21 million (25 - 4 million)
New price per share = $3 ($63 /21 million)
Thus, the new price per share is $3 if the firm uses $12 million of cash to repurchase shares.
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