Question

Pewter & Glass is an all-equity firm that has 145,000 shares of stock outstanding. The company is in the process of borrowing $750,000 at 6.8 percent interest to repurchase 8,000 shares of the outstanding stock. What is the value of this firm if you ignore taxes?

Answer 1

$13,593,750

Step-by-step explanation:

For computing the value of the firm, first, we have to determine the price per share which is shown below:

Price per share = Borrowing amount ÷ Number of repurchase shares

= $750,000 ÷ 8,000 shares

= $93.75

Now the value of the firm would be

= Outstanding shares × Price per share

= 145,000 shares × $93.75

= $13,593,750