Question

The Greenbriar is an all-equity firm with a total market value of $551,000 and 21,700 shares of stock outstanding. Management is considering issuing $153,000 of debt at an interest rate of 9 percent and using the proceeds on a stock repurchase. Ignore taxes. How many shares will the firm repurchase if it issues the debt securities?

Answer 1

$6,026

Step-by-step explanation:

The computation of the repurchase shares is shown below:

= Debt value ÷ market price per share

where,

Total market value is $551,000

And, the market price share would be

= Total market value ÷ outstanding stock

= $551,000 ÷ 21,700 shares

= $25.39

Now put these values to the above formula

So, the shares would be equal to

= $153,000 ÷ $25.39

= $6,026