Question

Bird Houses is an all-equity firm with a total market value of $388,980 and18,000 shares of stock outstanding. Management is considering issuing $68,000 of debt at an interest rate of 6.5 percent and using the proceeds on a stock repurchase. Ignore taxes. How many shares will the firm repurchase if it issues the debt securities? (Round the number of shares repurchased down to the nearest whole share.)

Answer 1

The number of shares that can be repurchased with $68,000 proceeds from issue of debt instrument is 3,147 shares as calculated below

Step-by-step explanation:

The company's price per share is $21.61 ($388980/18000),hence the number of shares that can be repurchased with $68000 is computed thus:

number of shares to be repurchased=$68000/$21.61

=3146.691347

The number of shares to be repurchased is approximately 3147 shares