This month Firm A repurchased 7.4 million shares of common stock at a cost of $820 million. One plausible reason for this is thatthe firm feels that its stock is undervalued at the current price.the firm feels that its stock is fairly priced at the current price.the firm needs a certain amount of money.the firm feels that its stock is overvalued at the current price. Which one of the following is not correct?For debt issued at a discount: interest expense reported on the income statement equals cash interest payment less amortization of thediscount.For debt issued at par: the net amount of bond payable is always the face value over the bond's life.For debt issued at a premium, interest expense reported on the income statement equals cash interest payment less amortization of thepremium.For debt issued at par: interest expense reported on the income statement equals the cash paid for interest.

Let's start with basic understanding, A share repurchase is a transaction whereby a company buys…

This month Firm A repurchased 7.4 million shares of common stock at a cost of $820 million. One plausible reason for this is that the firm feels that its stock is undervalued at the current price. the firm feels that its stock is fairly priced at the current price. the firm needs a certain amount of money. the firm feels that its stock is overvalued at the current price.

This month Firm A repurchased 7.4 million shares of common stock at a cost of $820 million. One plausible reason for this is that the firm feels that its stock is undervalued at the current price. the firm feels that its stock is fairly priced at the current price. the firm needs a certain amount of money. the firm feels that its stock is overvalued at the current price.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Natsam Corporation has $291 million of excess cash. The firm has no debt and 526 million shares outstanding with a current market price of $16 per share. Natsam's board has decided to pay out this cash as a one-time divide a. What is the ex-dividend price of a share in a perfect capital market? b. If the board instead decided to use the cash do a one-time share repurchase, in a perfect capital market, what is the price of the shares once the repurchase is complete? c. In a perfect capital market, which policy in part (a) or (b) makes investors in the firm better off? C a. What is the ex-dividend price of a share in a perfect capital market? The ex-dividend price is $ on a per share basis. (Round to the nearest cent.) b. If the board instead decided to use the cash to do a one-time share repurchase, in a perfect capital market, what is the price of the shares once the repurchase is complete? The price of the shares once the repurchase is complete is $ per share. (Round to the nearest…
Cooperton Mining just announced it will cut its dividend from $4.08 to $2.34 per share and use the extra funds to expand. Prior to the announcement, Cooperton's dividends were expected to grow at a 3.4% rate, and its share price was $48.37. With the planned expansion, Cooperton's dividends are expected to grow at a 4.9% rate. What share price would you expect after the announcement? (Assume that the new expansion does not change Cooperton's risk.) Is the expansion a good investment? C The new price for Cooperton's stock will be $ (Round to the nearest cent.) Is the expansion a good investment? (Select from the drop-down menu.) a good investment.
Natsam Corporation has $293 million of excess cash. The firm has no debt and 453 million shares outstanding with a current market price of $13 per share. Natsam's board has decided to pay out this cash as a one-time dividend. a. What is the ex-dividend price of a share in a perfect capital market? b. If the board instead decided to use the cash to do a one-time share repurchase, in a perfect capital market, what is the price of the shares once the repurchase is complete? c. In a perfect capital market, which policy in part (a) or (b) makes investors in the firm better off? a. What is the ex-dividend price of a share in a perfect capital market? The ex-dividend price is $12.94 on a per share basis. (Round to the nearest cent.)
Morgan Stanley has a current cash flow (at time 0) of $3.4 m and pays no dividends. The present value of the company's future cash flows is $14.6 m. The firm is entirely financed with equity and has 400,000 shares outstanding. Assume the dividend tax rate is zero. a. What is the share price of Morgan Stanley stock? b. Suppose the board of directors of Morgan Stanley announces its plan to payout 40% of its current cash flow as dividends to its shareholders. How can Andy, who owns 800 shares of Morgan Stanley stock, achieve a zero payout policy on his own? formulation: DPS= Tol Div (or excess cash) / No. of share [for unlevered firm] Share price = V/no. of share P ex-div = P - DPS EPS= Earnings (assume a constant) / no. of share P.E. = stock price/ EPS No. of share repurchase = Excess Cash / Stock Price
Baghiben
Blanket Company has paid quarterly dividends every quarter for the past 15 years. Lately, slowing sales have created a cash crunch for the company. While the company still has positive retained earnings, the retained earnings balance is close to zero. Should the company borrow to continue to pay dividends? Why or why not? a. Yes – discontinuing a previously regular dividend is very bad for public relations. b. Yes – best to keep stockholders happy and prevent a sell-off. c. No – borrowing will involve interest expense and will have to be repaid. d. No – it is illegal to pay a dividend that makes retained earnings negative.
The management of a conservative firm has adopted a policy of neverletting debt exceed 30 percent of total financing. The firm will earn$10,000,000 but distribute 40 percent in dividends, so the firm will have$6,000,000 to add to retained earnings. Currently the price of the stockis $50; the company pays a $2 per share dividend, which is expected togrow annually at 10 percent. If the company sells new shares, the net tothe company will be $48. Given this information, what is the: a.) cost of new common stock? The rate of interest on the firm’s long-term debt is 10 percent and thefirm is in the 32 percent income tax bracket. If the firm issues more than$2,400,000, the interest rate will rise to 11 percent. Given this information,what is the: b.) cost of debt?
Enron Corporation was a darling in the energy-provider arena, and in January 2001 its stock price rose above$100 per share. A collapse of investor confidence in 2001 and revelations of accounting fraud led to one of thelargest bankruptcies in U.S. history. By the end of the year, Enron’s stock price had plummeted to less than $1per share. Investigations and lawsuits followed. One problem area concerned transactions with related parties thatwere not adequately disclosed in the company’s financial statements. Critics stated that the lack of informationabout these transactions made it difficult for analysts following Enron to identify problems the company wasexperiencing.Required:1. Obtain the relevant authoritative literature on related-party transactions using the FASB Accounting StandardsCodification at the FASB website (www.fasb.org). What is the specific citation that outlines the requiredinformation on related-party disclosures that must be included in the notes to the financial…
Please help solve: Companies with excess cash often employ share repurchase plans in place of or along with cash dividends. Share repurchase plans can help investors liquidate their holdings by selling their stock to the issuing company and earning from capital gains. Consider the case of Sixty-second Avenue Company: Sixty-second Avenue Company has forecasted a net income of $4,800,000 for this year. Its common stock currently trades at $22 per share, and the company currently has 720,000 shares of common stock outstanding. It has sufficient funds available to pay a cash dividend, but many of its investors don't like the additional tax liability to which the dividend income subjects them. As a result, Sixty-second Avenue’s management is considering making a share repurchase transaction in which it would buy back 85,000 shares of its outstanding shares in the open market by paying the current market share price. Assume that the repurchase transaction will have no effect on either…
Cooperton Mining just announced it will cut its dividend from $4.22 to $2.58 per share and use the extra funds to expand. Prior to the announcement, Cooperton's dividends were expected to grow at a 3.3% rate, and its share price was $48.52. With the planned expansion, Cooperton's dividends are expected to grow at a 4.7% rate. What share price would you expect after the announcement? (Assume that the new expansion does not change Cooperton's risk.) Is the expansion a good investment?
Sydney’s Shrimpboat's net capital spending was $350,000 this year. The firm also reduced its NWC by $250,000. Their interest expense was $75,000 and the firm net redeemed $20,000 in long term debt. The company does not pay a dividend and did not issue any stock, but did repurchase $50,000 of common stock. What was the firm’s OCF for the year? a. $ 95,000 b. $245,000 c. $275,000 d. $100,000 e. $145,000
Cooperton Mining just announced it will cut its dividend from $3.95 to $2.34 per share and use the extra funds to expand. Prior to the announcement, Cooperton's dividends were expected to grow at a 3.5% rate, and its share price was $50.67. With the planned expansion, Cooperton's dividends are expected to grow at a 4.8% rate. What share price would you expect after the announcement? (Assume that the new expansion does not change Cooperton's risk.) Is the expansion a good investment? The new price for Cooperton's stock will be $. (Round to the nearest cent.)