Clark Industries has 200 million shares outstanding, a current share price of $30, and no debt. Clark plans to distribute $600 M in cash to its shareholders by repurchasing shares at the current market price. (a): What is Clark's share price after the repurchase? (b): Immediately after the repurchase, new information is revealed that increases investors' valuation of Clark by $400 M. What is Clark's share price after this realization? (c): Suppose that before the share repurchase, management knew the market was undervaluing the firm by $400 M. If the repurchase had occured after the information disclosure, what would the current share price be?
Clark Industries has 200 million shares outstanding, a current share price of $30, and no debt. Clark plans to distribute $600 M in cash to its shareholders by repurchasing shares at the current market price. (a): What is Clark's share price after the repurchase? (b): Immediately after the repurchase, new information is revealed that increases investors' valuation of Clark by $400 M. What is Clark's share price after this realization? (c): Suppose that before the share repurchase, management knew the market was undervaluing the firm by $400 M. If the repurchase had occured after the information disclosure, what would the current share price be?
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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M1
Transcribed Image Text:Clark Industries has 200 million shares
outstanding, a current share price of $30, and no
debt. Clark plans to distribute $600 M in cash to
its shareholders by repurchasing shares at the
current market price.
(a): What is Clark's share price after the
repurchase?
(b): Immediately after the repurchase, new
information is revealed that increases investors'
valuation of Clark by $400 M. What is Clark's
share price after this realization?
(c): Suppose that before the share repurchase,
management knew the market was undervaluing
the firm by $400 M. If the repurchase had occured
after the information disclosure, what would the
current share price be?
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