Question

The Jean Outlet is an all-equity firm that has 152,000 shares of stock outstanding. The company has decided to borrow $1.1 million to repurchase 7,500 shares of its stock from the estate of a deceased shareholder. What is the total value of the firm if you ignore taxes?A. $18,387,702B. $19,666,667C. $22,293,333D. $18,500,000E. $21,413,333

Answer 1

Answer:

C) $22,293,333

Explanation:

If the 7,500 shares of the deceased shareholder are worth $1.1 million, then each share is worth $ 146.67 (= $1,100,000 / 7,500 shares). If the company has a total of 152,000 outstanding shares, then the total value of the firm is $ 22,293,333 (= 152,000 shares x $146.67 per share).