Question

A company is all-equity financed. Total market value of the firm is $200,000 and there are...

A company is all-equity financed. Total market value of the firm is $200,000 and there are 1,000 shares currently outstanding. The firm plans to repurchase $20,000 worth of stock. Tax rate on dividends and capital gains is zero.

a) What will be the stock price before and after the repurchase?

b) suppose an investor who holds 10 shares sells 1 of her shares back to the firm. what will be value of her position?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Market value of firm=$200,000

Shares currently outstanding= 1000

Market price per share= $200

Repurchase value=$20,000

Number of shares of repurchase=100

Percentage of increase in earning per share because of buy back==11.11%

Market price will also increase in same percentage.

a) Stock price before repurchase =$200

Stock price after repurchase= 200(1+0.1111)

=$222.22

b)If investor sells 1 share remaining share will be 9

value of 9 share = 9 222.22

   =$2000

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
7. Impac Company is currently an all equity firm with a total market value of $16,500,000...
7. Impac Company is currently an all equity firm with a total market value of $16,500,000 with 1,200,000 shares of stock outstanding. The firm has expected EBIT of $1,360,000 if the economy is normal and $1,870,000 if the economy booms. The firm is considering a $4,500,000 bond issue with an attached interest rate of 6 percent. The bond proceeds will be used to repurchase shares. Ignore taxes. What will the earnings per share be after the repurchase if the economy...
Kopes Industries is an all-equity firm with a total market value of $320,000. The firm has...
Kopes Industries is an all-equity firm with a total market value of $320,000. The firm has 15,000 shares of stock outstanding. Management is considering issuing $100,000 of debt at an interest rate of 8 percent and using the proceeds on a stock repurchase. Ignore taxes. How many shares can the firm repurchase if it issues the debt securities?
Cross Town Cookies is an all-equity firm with a total market value of $765,000. The firm...
Cross Town Cookies is an all-equity firm with a total market value of $765,000. The firm has 46,000 shares of stock outstanding. Management is considering issuing $188,000 of debt at an interest rate of 6 percent and using the proceeds to repurchase shares. Before the debt issue, EBIT will be $69,200. What is the EPS if the debt is issued? Ignore taxes.
The Greenbriar is an all-equity firm with a total market value of $542,000 and 21,400 shares...
The Greenbriar is an all-equity firm with a total market value of $542,000 and 21,400 shares of stock outstanding. Management is considering issuing $141,000 of debt at an interest rate of 6 percent and using the proceeds on a stock repurchase. Ignore taxes. How many shares will the firm repurchase if it issues the debt securities? Multiple Choice 334 shares 5,567 shares 6,186 shares 32,520 shares 6,748 shares
Nielson Motors is currently an all-equity financed firm. It expects to generate EBIT of $20 million...
Nielson Motors is currently an all-equity financed firm. It expects to generate EBIT of $20 million over the next year. Currently Nielson has 8 million shares outstanding and its stock is trading at $20.00 per share. Nielson is considering changing its capital structure by borrowing $50 million at an interest rate of 8% and using the proceeds to repurchase shares. Assume perfect capital markets. Nielson's EPS if they change their capital structure is closest to _____ $/share. A. 2.50 B....
Wilton's Market is an all-equity firm with a total market value of $260,000 and 12,000 shares...
Wilton's Market is an all-equity firm with a total market value of $260,000 and 12,000 shares of stock outstanding. Management is considering issuing $60,000 of debt at an interest rate of 7 percent and using the proceeds on a stock repurchase. As an all-equity firm, management believes the earnings before interest and taxes (EBIT) will be $26,000 if the economy is normal, $8,000 if it is in a recession, and $35,000 if the economy booms. Ignore taxes. If the economy...
Cross Town Cookies is an all-equity firm with a total market value of $740,000. The firm...
Cross Town Cookies is an all-equity firm with a total market value of $740,000. The firm has 46,000 shares of stock outstanding. Management is considering issuing $173,000 of debt at an interest rate of 9 percent and using the proceeds to repurchase shares. Before the debt issue, EBIT will be $66,200. What is the EPS if the debt is issued? Ignore taxes. Multiple Choice $1.25 $1.44 $1.56 $.98 $1.66
XYZ Co. is all equity financed. The equity consists of 1000 common shares with a market...
XYZ Co. is all equity financed. The equity consists of 1000 common shares with a market value of $10 per share. Management is considering three mutually exclusive uses of $1000 in cash that is not needed for working capital. What will be the market price of XYZ's common stock, the number of shares outstanding, and the value of the firm immediately after each of these alternatives? Ignore tax considerations. a) Pay a cash dividend of $1 per share. b) Use...
Kurz Manufacturing is currently an​ all-equity firm with 22 million shares outstanding and a stock price...
Kurz Manufacturing is currently an​ all-equity firm with 22 million shares outstanding and a stock price of $8.00 per share. Although investors currently expect Kurz to remain an​ all-equity firm, Kurz plans to announce that it will borrow $47 million and use the funds to repurchase shares. Kurz will pay interest only on this​ debt, and it has no further plans to increase or decrease the amount of debt. Kurz is subject to a 35% corporate tax rate.   a. What...
Kurz Manufacturing is currently an​ all-equity firm with 18 million shares outstanding and a stock price...
Kurz Manufacturing is currently an​ all-equity firm with 18 million shares outstanding and a stock price of $ 11.50 per share. Although investors currently expect Kurz to remain an​ all-equity firm, Kurz plans to announce that it will borrow $ 45 million and use the funds to repurchase shares. Kurz will pay interest only on this​ debt, and it has no further plans to increase or decrease the amount of debt. Kurz is subject to a 30 % corporate tax...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT