AMC Corporation currently has an enterprise value of $ 450million and $ 110million in excess...
80.2K
Verified Solution
Link Copied!
Question
Finance
AMC Corporation currently has an enterprise value of $ 450million and $ 110million in excess cash. The firm has 10million shares outstanding and no debt. Suppose AMC uses its excess cash to repurchase shares. After the sharerepurchase,news will come out that will changeAMC'senterprise value to either $ 650million or $ 250million.
a.What isAMC'sshare price prior to the sharerepurchase?
b. What isAMC'sshare price after the repurchase if its enterprise value goesup?What isAMC'sshare price after the repurchase if its enterprise valuedeclines?
c. Suppose AMC waits until after the news comes out to do the share repurchase. What isAMC'sshare price after the repurchase if its enterprise value goesup?What isAMC'sshare price after the repurchase if its enterprise valuedeclines?
d.Suppose AMC management expects good news to come out. Based on your answers to parts (b)and (c),if management desires to maximizeAMC'sultimate shareprice,will they undertake the repurchase before or after the news comesout?When would management undertake the repurchase if they expect bad news to comeout?
e.Given your answer to (d),what effect would you expect an announcement of a share repurchase to have on the stockprice?Why?
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
