Question

The Greenbriar is an all-equity firm with a total market value of $539,000 and 21,300 shares of stock outstanding. Management is considering issuing $137,000 of debt at an interest rate of 10 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

5,413 shares

Step-by-step explanation:

The computation of the no of shares repurchased is given below;

Market Price per Share

= Existing market Value of Firm ÷ Number of Shares Outstanding

= $539,000 ÷ 21,300 Shares

= $25.31 per share

Now

Total number of shares that can be redeemed

= Total Debt Issued ÷ Market Price per share

= $137,000 ÷ $25.31 per Share

= 5,413 shares