Question: CMA Ltd currently has an enterprise value (that is, present value of future free cash flows) of $400 million and $100 million in excess cash.

CMA Ltd currently has an enterprise value (that is, present value of future free cash flows) of $400 million and $100 million in excess cash. The firm has 10 million shares outstanding and no debt. Suppose CMA uses its excess cash to repurchase shares. In the near future there news is scheduled to come out that will change AMC's enterprise value to either $600 million or $200 million.

Suppose CMA management expects good news to come out. If management’s goal is to maximize price per share, what would be optimal for CMA to do – purchase shares before the news or after the news? Explain, provide necessary computations

Now answer question a) assuming that CMA management expects bad news to come out.

Suppose CMA announces stock repurchase program before the news release date. What would you expect the announcement to have on the stock price? Why?

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