Assume the following: Cash Flow From Assets = $25; Interest payments = $3; Dividends paid =...

Assume the following: Cash Flow From Assets = $25; Interest payments = $3; Dividends paid = $10; The firm sold new bonds in the amount of $30. This firm (repurchased) (sold additional) stock in the amount of $_____.

Expert Solution

Cash flow from assets = Cash flow to creditors + Cash flow to stockholders.

From the above relation we can calculate cash flow to stockholders, which would be used to calculate shares repurchased or sold.

Cash flow to creditors	Interest paid - Net new borrowing
Cash flow to creditors	3-30
Cash flow to creditors	-$27.00

Calculation of cash flow to stockholders.
Cash flow from assets = Cash flow to creditors + Cash flow to stockholders.
25	-27+ Cash flow to stockholders
Cash flow to stockholder's	$52.00

Calculation of shares repurchased or sold
Cash flow to stockholder's	Dividend paid - Net new equity
52	10 - Net new equity
Net new equity	10-52
Net new equity	-42

Net new equity is negative, this mean company has repurchased stock.

This firm repurchased stock in the amount of -$42.

jeff jeffy answered 11 months ago

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