AMC Corporation currently has an enterprise value of 360 millionand 120 million in excess cash. The firm has 30 million sharesoutstanding and no debt. Suppose AMC uses its excess cash torepurchase shares. After the share repurchase, news will come outthat will change AMC's enterprise value to either 560 million or160 million. Suppose AMC management expects good news to come out.If management wants to maximize AMC's ultimate share price, willthey undertake the repurchase before or after the news comes out?When would management undertake the repurchase if they expect badnews to come out? What effect would you expect an announcement ofa share repurchase to have on the stock price?
Question content area bottom Part 1 To maximize its shareprice, when will AMC prefer to repurchase shares? (Select thebest choice below.)
A. Before either good or bad news comes out.
B. Before good news and after bad news comes out.
C. After good news and before bad news comes out.
D. After either good or bad news comes out.
Part 2 Given your answer above, what effect would you expect anannouncement of a share repurchase to have on the stock price? (Select the best choice below.)
a. An announcement of a share repurchase implies that managementexpects bad news to come out or that any good news has alreadycome out, both of which could have a positive impact on the stockprice.
b. An announcement of a share repurchase implies that managementexpects good news to come out or that any bad news has alreadycome out, both of which could have a positive impact on the stockprice.
AMC Corporation currently has an enterprise value of 360 million and 120 million in excess cash. The firm has 30 million
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