AMC Corporation currently has an enterprise value of $ 450million and $ 110million in excess cash....

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?

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SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

jeff jeffy answered 1 year ago

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