Question
Asked by:
$4.00 Sure Thing Company - Stock Repurchases choice
- From Business: General-Business , Economics: General-Economics
- Closed, but you can still post tutorials
- Due on Feb. 03, 2008
- Asked on Jan 23, 2008 at 7:52:17PM
Q:Please see attachment
( Stock Repurchase – Sure Thing Inc. )
Sure Thing Inc. has earnings this year of $ 16.5 million, 50 percent of which is required to take advantage of the firm’s excellent investment opportunities. The firm has 2,062,500 shares outstanding, selling currently at $32 per share. Susan Long, a major stockholder ( 187,500 shares ), has expressed displeasure with a great deal of managerial policy. Management has approached her about selling her holdings back to the firm, and she has expressed a willingness to do so at $32 per share. Assuming that the market uses a constant P/E ratio of 4 in valuing the stock, should the firm buy Long’s shares ? Assume that dividends will not be paid on Long’s shares if they are repurchased. ( Hint: Calculate the ex-dividend price of the stock with and without the repurchase, and add to these values the dividends received to determine the remaining shareholders’ value per share )
Attachments:
Stock Repurchase-SureThing.doc (24K)
BA410-Mod5-sect3-Q14-6-Stock Repurchase-SureTh.doc (24K)
