Question

The Greenbriar is an all-equity firm with a total market value of $584,000 and 22,800 shares of stock outstanding. Management is considering issuing $197,000 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

7,691 stocks

Step-by-step explanation:

total market value = $584,000

total outstanding stocks = 22,800

price per stock = $584,000 / 22,800 = $25.614 per stock

management can repurchase $197,000 / $25.614 per stock = 7,691.1 = 7,691 stocks

stocks outstanding after repurchase = 22,800 - 7,691 = 15,109 stocks