Question

rabadan consulting is an all-equity firm that has 75,000 shares of stock outstanding. the owners of the company have agreed to borrow $280,000 to repurchase 2,500 shares of its stock from one of the shareholders. ignoring taxes, what is the total value of the firm?

Answer 1

To find the total value of the firm after repurchasing 2,500 shares of its stock, you need to calculate the new equity value and add the borrowed amount to it.

1. Calculate the initial equity value:
Initial Equity Value = Number of Shares Outstanding * Price per Share
Initial Equity Value = 75,000 shares * Price per Share

2. Calculate the price per share before the repurchase:
Price per Share = Initial Equity Value / Number of Shares Outstanding

3. Calculate the new equity value after repurchasing 2,500 shares:
New Equity Value = (Number of Shares Outstanding - Shares Repurchased) * Price per Share
New Equity Value = (75,000 - 2,500) shares * Price per Share

4. Calculate the total value of the firm:
Total Value of the Firm = New Equity Value + Borrowed Amount
Total Value of the Firm = New Equity Value + $280,000

Now, let's plug in the values and calculate:

Initial Equity Value = 75,000 shares * Price per Share
New Equity Value = (75,000 - 2,500) shares * Price per Share
Total Value of the Firm = New Equity Value + $280,000

Since you didn't provide the price per share, you'll need that information to complete the calculation. Once you have the price per share, you can calculate the total value of the firm.

Answer 2

The total value of the firm is $289,500

Step-by-step explanation:

To find the total value of the firm, we need to determine the value of the remaining shares after the repurchase. The firm originally had 75,000 shares, and it is repurchasing 2,500 shares, so there will be 75,000 - 2,500 = 72,500 shares remaining.

Since the firm is all-equity, the value of the firm is equal to the market value of its shares. We can calculate the market value per share by dividing the total borrowed amount by the number of remaining shares. In this case, the firm borrowed $280,000 to repurchase the shares, so the market value per share is $280,000 / 72,500 = $3.86 per share.

Therefore, the total value of the firm is $3.86 per share multiplied by the total number of shares, which is $3.86 * 75,000 = $289,500.