Share repurchase proposal: Currently, the firm has available capital (cash and net income) of approximately $7,000,000. There is a large block of stock available at $35 a share. For the sake of this exercise let us disregard tax implications and effects. If the firm decides to spend this amount of excess cash on a share repurchase program, how many shares will be repurchased?? What are the benefits of repurchasing shares? How will this affect the capital structure of the company? How can this be interpreted in the marketplace? Suppose the market price of the shares is $35.75 a share. Why do you think the seller of the large block would agree to see at $35 a share?
Share repurchase proposal: Currently, the firm has available capital (cash and net income) of approximately $7,000,000. There is a large block of stock available at $35 a share.
For the sake of this exercise let us disregard tax implications and effects.
If the firm decides to spend this amount of excess cash on a share repurchase program, how many shares will be repurchased??
What are the benefits of repurchasing shares? How will this affect the capital structure of the company? How can this be interpreted in the marketplace?
Suppose the market price of the shares is $35.75 a share. Why do you think the seller of the large block would agree to see at $35 a share?
Suppose the assumptions of MM are true, then what would happen to the market price of shares once the purchase of the large block at $35 a share is completed? Would it rise above $35.75, remain unchanged or fall?
Would a dividend be better? Please discuss the pros and cons of dividends and share buybacks. Make a recommendation to management.
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