The manner in which the market price of the stock affected by the announcement. The share repurchase is the strategy by which companies will take back or buy back its own shares from the market place. If the management considered the shares are undervalued the company may buy back its shares.

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Answer 1

Question

Chapter 17, Problem 7PS

a)

Summary Introduction

To determine: The manner in which the market price of the stock affected by the announcement.

The share repurchase is the strategy by which companies will take back or buy back its own shares from the market place. If the management considered the shares are undervalued the company may buy back its shares.

b)

Summary Introduction

To determine: The number of shares that the company can able to buy back with the $160 million of new debt that it issues.

c)

Summary Introduction

To determine: The market value of the firm after the change in capital structure.

d)

Summary Introduction

To determine: The debt ratio after the change in the capital structure.

e)

Summary Introduction

To determine: whether anyone got benefited or loses.

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Q.An unlevered company that has a current value of $1,600,000 is considering borrowing $700,000 and using the borrowed funds to repurchase shares. The company can borrow at 5% and has a cost of equity of 13%. EBIT is expected to remain the same every year forever. Assume all available earnings are immediately distributed to common shareholders and all the M&M assumptions are satisfied. What is the company's EBIT according to M&M Proposition I without taxes?

QUESTION 17 If a company has 2240 million shares outstanding and each share is worth AUD 3.60 the market capitalization (value of the company) is million AUD. The company seeks to raise AUD 728 million by selling new shares with a subscription price of AUD 2.60, therefore it has to issue million new shares. After issuing these new shares successfully its new market capitalization will be million AUD and the total amount of shares will grow to million. As a result the value of each share after the issue will be AUD. The difference between the subscription price and the share price after the issue is AUD. Therefore, it is worth to pay up to AUD for the RIGHT to buy shares at AUD 2.60. Compare the old share price with the share price after the issue. It dropped by AUD. The ratio of the number of old shares to newly issued shares is exactly . This is also the number of old shares you need to get ONE RIGHT for a new share. HINT: Check if old shareholders' losses can be recovered by selling…

Executive Chalk is financed solely by common stock and has outstanding 25 million shares with a market price of $10 a share. It now announces that it intends to issue $160 million of debt and to use the proceeds to buy back common stock. a. How is the market price of the stock affected by the announcement? b. How many shares can the company buy back with the $160 million of new debt that it issues? Note: Enter your answer in millions. c-1. What is the market value of the firm (equity plus debt) after the change in capital structure? Note: Enter your answer in millions. c-2. Did the market value of the firm change? d. What is the debt ratio after the change in structure? Note: Round your answer to 2 decimal places. e. Who (if anyone) gains or loses? a. Effect on market price b. Shares repurchased c-1. Market value c-2. Did the market value of the firm change? d. Debt ratio e. Who (if anyone) gains or loses? Stock price remains the same. 160 million 250 million $ No 1.78 No one gains or…

Answer 2

Question

Chapter 17, Problem 7PS

a)

Summary Introduction

To determine: The manner in which the market price of the stock affected by the announcement.

The share repurchase is the strategy by which companies will take back or buy back its own shares from the market place. If the management considered the shares are undervalued the company may buy back its shares.

b)

Summary Introduction

To determine: The number of shares that the company can able to buy back with the $160 million of new debt that it issues.

c)

Summary Introduction

To determine: The market value of the firm after the change in capital structure.

d)

Summary Introduction

To determine: The debt ratio after the change in the capital structure.

e)

Summary Introduction

To determine: whether anyone got benefited or loses.

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Answer 3

Question

Chapter 17, Problem 7PS

a)

Summary Introduction

To determine: The manner in which the market price of the stock affected by the announcement.

The share repurchase is the strategy by which companies will take back or buy back its own shares from the market place. If the management considered the shares are undervalued the company may buy back its shares.

b)

Summary Introduction

To determine: The number of shares that the company can able to buy back with the $160 million of new debt that it issues.

c)

Summary Introduction

To determine: The market value of the firm after the change in capital structure.

d)

Summary Introduction

To determine: The debt ratio after the change in the capital structure.

e)

Summary Introduction

To determine: whether anyone got benefited or loses.

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Answer 4

Question

Chapter 17, Problem 7PS

a)

Summary Introduction

To determine: The manner in which the market price of the stock affected by the announcement.

The share repurchase is the strategy by which companies will take back or buy back its own shares from the market place. If the management considered the shares are undervalued the company may buy back its shares.

b)

Summary Introduction

To determine: The number of shares that the company can able to buy back with the $160 million of new debt that it issues.

c)

Summary Introduction

To determine: The market value of the firm after the change in capital structure.

d)

Summary Introduction

To determine: The debt ratio after the change in the capital structure.

e)

Summary Introduction

To determine: whether anyone got benefited or loses.

Expert Solution & Answer

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Answer 5

Chapter 17, Problem 7PS

a)

Summary Introduction

To determine: The manner in which the market price of the stock affected by the announcement.

The share repurchase is the strategy by which companies will take back or buy back its own shares from the market place. If the management considered the shares are undervalued the company may buy back its shares.

b)

Summary Introduction

To determine: The number of shares that the company can able to buy back with the $160 million of new debt that it issues.

c)

Summary Introduction

To determine: The market value of the firm after the change in capital structure.

d)

Summary Introduction

To determine: The debt ratio after the change in the capital structure.

e)

Summary Introduction

To determine: whether anyone got benefited or loses.

Answer 6

Chapter 17, Problem 7PS

a)

Summary Introduction

To determine: The manner in which the market price of the stock affected by the announcement.

The share repurchase is the strategy by which companies will take back or buy back its own shares from the market place. If the management considered the shares are undervalued the company may buy back its shares.

Answer 7

Chapter 17, Problem 7PS

a)

Summary Introduction

To determine: The manner in which the market price of the stock affected by the announcement.

The share repurchase is the strategy by which companies will take back or buy back its own shares from the market place. If the management considered the shares are undervalued the company may buy back its shares.

Answer 8

b)

Summary Introduction

To determine: The number of shares that the company can able to buy back with the $160 million of new debt that it issues.

Answer 9

b)

Summary Introduction

To determine: The number of shares that the company can able to buy back with the $160 million of new debt that it issues.

Answer 10

c)

Summary Introduction

To determine: The market value of the firm after the change in capital structure.

Answer 11

c)

Summary Introduction

To determine: The market value of the firm after the change in capital structure.

Answer 12

d)

Summary Introduction

To determine: The debt ratio after the change in the capital structure.

Answer 13

d)

Summary Introduction

To determine: The debt ratio after the change in the capital structure.

Answer 14

e)

Summary Introduction

To determine: whether anyone got benefited or loses.

Answer 15

e)

Summary Introduction

To determine: whether anyone got benefited or loses.

Answer 16

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Answer 17

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Answer 18

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Answer 19

Ch. 17 - Homemade leverage Ms. Kraft owns 50,000 shares of...Ch. 17 - Homemade leverage Companies A and B differ only in...Ch. 17 - Corporate leverage Suppose that Macbeth Spot...Ch. 17 - Corporate leverage Reliable Gearing currently is...Ch. 17 - MMs propositions True or false? a. MMs...Ch. 17 - MMs propositions What is wrong with the following...Ch. 17 - Prob. 7PS Ch. 17 - MM proposition 1 Executive Cheese has issued debt...Ch. 17 - Prob. 9PS Ch. 17 - Prob. 10PS

The manner in which the market price of the stock affected by the announcement. The share repurchase is the strategy by which companies will take back or buy back its own shares from the market place. If the management considered the shares are undervalued the company may buy back its shares.

Solution Summary: The author explains share repurchase as a strategy by which companies take back or buy back their own shares from the market place.

To determine: The number of shares that the company can able to buy back with the $160 million of new debt that it issues.

To determine: The market value of the firm after the change in capital structure.

To determine: The debt ratio after the change in the capital structure.

To determine: whether anyone got benefited or loses.

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Chapter 17 Solutions