Question

AMC Corporation currently has an enterprise value? (EV) of $390 million and $100 million in excess cash. The firm has 20 million shares outstanding and no debt. Suppose AMC uses its excess cash to repurchase shares. After the share? repurchase, news will come out that will change? AMC's enterprise value to either $590 million or $190 million. What is? AMC's share price after the repurchase if its enterprise value goes? up? What is? AMC's share price after the repurchase if its enterprise value? declines?

AMC's share price after the repurchase if its enterprise value goes up is -----

Answer 1

Total value of company = Enterprise value + Cash = $390 million + $100 million = $490 million

Current share price = Current value of company / Current no. of shares = $490 million / 20 million = $24.5

Shares to be repurchased = Cash / Share price = $100 million / $24.5 = 4.08163265306 million

Shares remaining = 20 million - 4.08163265306 million = 15.918367347 million

EV goes up

Now, their is no cash left so, EV is the value of equity of the company.

Share price = $590 million / 15.918367347 million = $37.0641025639 or $37.06

EV goes down

Share price = $190 million / 15.918367347 million = $11.9358974358 or $11.94