T\'he Opportunistic Repurchase: Concept Connection Example 15-7 (page 656) Tydek
ID: 2727309 • Letter: T
Question
T'he Opportunistic Repurchase: Concept Connection Example 15-7 (page 656) Tydek Inc. just lost a major lawsuit, and its stock price dropped by 40% to $6. There are 3.5 million shares outstanding which are currently selling at their book value of si0. The company has $5 million in cash readily available. The CFO feels the decline in price is temporary and the firm's stock is an excellent investment at this time. IfTydek the entire $5 million on its own stock and the market-to-book-value ratio returns to its former level, how much more will each remaining share be worth than it was before the temporary price decline? 16. rm's stock is an excellent investment at this time. If Tydek spendsExplanation / Answer
Ans: As $6 per share so no of share he can buy= 5000000/6 833333 Leaving 3500000-833333 2666667 Share outstanding When the market recover the book and market value of the firm's equity will be just 35000000-500000=34500000 since 500000 was spend on stock each share shall be valued at 34500000/2666667 12.93 Management shall earn 12.93-10=2.93 extra
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