Final answer:
After Zoom Corporation uses its $50 million in cash to repurchase shares, if the enterprise value rises to $300 million, the new share price would be $18.75. Conversely, if the enterprise value declines to $100 million, the new share price would drop to $6.25.
Step-by-step explanation:
To determine the share price of Zoom Corporation after share repurchase if the enterprise value changes, we first need to calculate the new number of shares outstanding post-repurchase. If Zoom uses all of its $50 million cash to buy back shares at the current price of $12.50, it can repurchase 4 million shares ($50 million / $12.50 per share). This will leave Zoom with 16 million shares outstanding (20 million original - 4 million repurchased).
Now, post-repurchase, if Zoom's enterprise value goes up to $300 million, we calculate the new equity value by adding cash (which is now $0, since it was used for the repurchase) and subtracting any debt (which is $0 as given). So, the equity value will be equal to the enterprise value of $300 million. The new share price will then be $300 million / 16 million shares = $18.75 per share.
In the case where the enterprise value declines to $100 million, using the same method, the new equity value is also $100 million and the new share price would be $100 million / 16 million shares = $6.25 per share.