what will the stock price be after the repurchase i

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
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Assume that company A wants to boost its stock price. The company currently has
14 million shares outstanding with a market price of $14 per share and no debt. A
has had consistently stable earnings, and pays a 40% 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 $14 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)?
Transcribed Image Text:Assume that company A wants to boost its stock price. The company currently has 14 million shares outstanding with a market price of $14 per share and no debt. A has had consistently stable earnings, and pays a 40% 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 $14 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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