Assume that company A wants to boost its stock price. The company currently has 10 million shares outstanding with a market price of $29 per share and no debt. A has had consistently stable earnings, and pays a 20% tax rate. Management plans to borrow $45 million on a permanent basis and they will use the borrowed funds to repurchase outstanding shares. If A can repurchase at the current price of $29 per share, what will the stock price be after the repurchase (keep two decimal places and assume that the new borrowing will not have any negative effects)?
Assume that company A wants to boost its stock price. The company currently has 10 million shares outstanding with a market price of $29 per share and no debt. A has had consistently stable earnings, and pays a 20% tax rate. Management plans to borrow $45 million on a permanent basis and they will use the borrowed funds to repurchase outstanding shares. If A can repurchase at the current price of $29 per share, what will the stock price be after the repurchase (keep two decimal places and assume that the new borrowing will not have any negative effects)?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Assume that company A wants to boost its stock price. The company currently has
10 million shares outstanding with a market price of $29 per share and no debt. A
has had consistently stable earnings, and pays a 20% tax rate. Management plans to
borrow $45 million on a permanent basis and they will use the borrowed funds to
repurchase outstanding shares. If A can repurchase at the current price of $29 per
share, what will the stock price be after the repurchase (keep two decimal places and
assume that the new borrowing will not have any negative effects)?
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