Question

Taunton's is an all-equity firm that has 155,500 shares of stock outstanding. The CFO is considering borrowing $287,000 at 7 percent interest to repurchase 24,500 shares. Ignoring taxes, what is the value of the firm?

a- 1,821,571

b- 1,908,313

c- 2,081,796

d-2,241,934

e- 2,354,031

Answer 1

a. 1,821,571

Step-by-step explanation:

Repurchase of shares = 24,500 shares

Share price per share = $287,000/24,500 = $11.7143

Value of the firm = 155,500*11.7143 = $1,821,571