12 Stiler XYZ currently has an enterprise value of $600 million, 20 million shares outstanding, $200...

 

Transcribed Image Text:

12 Stiler XYZ currently has an enterprise value of $600 million, 20 million shares outstanding, $200 million in excess cash and no debt. Assuming XYZ uses its excess cash to repurchase shares, and 'news will come out after this that will alter XYZ's enterprise value to either $800 million or $400 million. a) What is XYZ's share price prior to the share repurchase? b) What is XYZ's share price after the repurchase if its enterprise value goes up? What is XYZ's share price after the repurchase if its enterprise value declines? c) Suppose XYZ waits until after the news comes out to do the share repurchase. What is XYZ's share price after the repurchase if its enterprise value goes up? What is XYZ's share price after the repurchase if its enterprise value declines? d) Suppose XYZ management expects good news to come out. Based on your answers to parts (b) and (c), if management desires to maximize XYZ's ultimate share price, will they undertake the repurchase before or after the news comes out? When would management undertake the repurchase if they expect bad news to come out? e) Given your answer to part (d), what effect would you expect an announcement of a share repurchase to have on the stock price? Why? 12 Stiler XYZ currently has an enterprise value of $600 million, 20 million shares outstanding, $200 million in excess cash and no debt. Assuming XYZ uses its excess cash to repurchase shares, and 'news will come out after this that will alter XYZ's enterprise value to either $800 million or $400 million. a) What is XYZ's share price prior to the share repurchase? b) What is XYZ's share price after the repurchase if its enterprise value goes up? What is XYZ's share price after the repurchase if its enterprise value declines? c) Suppose XYZ waits until after the news comes out to do the share repurchase. What is XYZ's share price after the repurchase if its enterprise value goes up? What is XYZ's share price after the repurchase if its enterprise value declines? d) Suppose XYZ management expects good news to come out. Based on your answers to parts (b) and (c), if management desires to maximize XYZ's ultimate share price, will they undertake the repurchase before or after the news comes out? When would management undertake the repurchase if they expect bad news to come out? e) Given your answer to part (d), what effect would you expect an announcement of a share repurchase to have on the stock price? Why?

Answer rating: 100% (QA)

a To calculate XYZs share price prior to the share repurchase we divide the enterprise value by the number of shares outstanding Share Price Enterpris... View the full answer