123 A B Problem 17-30 D E F G H J 4 AMC Corporation currently has an enterprise value of $400 million and $100 million in excess cash. The firm has 10 million shares outstanding and no debt. Suppose AMC uses its excess cash to repurchase shares. After the share repurchase, news will come out that will change AMC's enterprise value to either $600 million or $200 million. Complete the steps below using cell references to given data or previous calculations. In some cases, a simple cell reference is all you need. To copy/paste a formula across a row or down a column, an absolute cell reference or a mixed cell reference may be preferred. If a specific Excel function is to be used, the directions will specify the use of that function. Do not type in numerical data into a cell or function. Instead, make a reference to the cell in which the data is found. Make your computations only in the blue cells highlighted below. In all cases, unless otherwise directed, use the earliest appearance of the data in your formulas, usually the Given Data section. 5 6 a. What is AMC's share price prior to the share repurchase? b. What is AMC's share price after the repurchase if its enterprise value goes up? What is AMC's share price after the repurchase if its enterprise value declines? 7 C. 8 9 10 11 12 13 14 15 2 16 17 18 19 20 21 22 Suppose AMC waits until after the news comes out to do the share repurchase. What is AMC's share price after the repurchase if its enterprise value goes up? What is AMC's share price after the repurchase if its enterprise value declines? d. Suppose AMC management expects good news to come out. Based on your answers to parts (b) and (c), if management desires to maximize AMC's ultimate share price, will they undertake the repurchase before or after the news comes out? When would management undertake the repurchase if they expect bad news to come out? e. Given your answers to part (d), what would you expect an announcement of a share repurchase prior to the news to have on the stock price? Why? Enterprise value before announcement (million) Excess cash (million) Shares outstanding (million) High enterprise value (million) Low enterprise value (million) $400 $100 10 $600 $200 a. What is AMC's share price prior to the share repurchase? Share price before repurchase b. What is AMC's share price after the repurchase if its enterprise value goes up? What is AMC's share price after the repurchase if its enterprise value declines? Shares to repurchase (million) 23 24 25 26 27 Low share price post repurchase 28 High share price post repurchase 28 29 30 31 32 33 34 C. Suppose AMC waits until after the news comes out to do the share repurchase. What is AMC's share price after the repurchase if its enterprise value goes up? What is AMC's share price after the repurchase if its enterprise value declines? High share price post repurchase Low share price post repurchase d. Suppose AMC management expects good news to come out. Based on your answers to parts (b) and (c), if management desires to maximize AMC's ultimate share price, will they undertake the repurchase before or after the news comes out? When would management undertake the repurchase if they expect bad news to come out? If management expects the news to be good, it will benefit shareholders if they repurchase the news is released. 35 36 37 38 39 40 If management expects the news to be bad, it will benefit shareholders if they repurchase the news is released. 41 42 43 44 45 46 47 e. Given your answers to part (d), what would you expect an announcement of a share repurchase prior to the news to have on the stock price? Why? You would expect the share price to is about to be released. because the announcement will mean that good news 48 Requirements 49 50 51 52 62 53 54 55 56 57 58 59 1. Start Excel - completed. 2. In cell D21, by using cell references, calculate the company's share price prior to the share repurchase (1 pt.). 3. In cell D25, by using cell references, calculate the number of shares that can be repurchased with the excess cash (1 pt.). 4. In cell D26, by using cell references, calculate the company's share price after the share repurchase if its enterprise value goes up (1 pt.). 5. In cell D27, by using cell references, calculate the company's share price after the share repurchase if its enterprise value goes down (1 pt.). 6. In cell D31, by using cell references, calculate the company's share price after the announcement (but before the share repurchase) if its enterprise value goes up (1 pt.). 7. In cell D32, by using cell references, calculate the company's share price after the announcement (but before the share repurchase) if its enterprise value goes down (1 pt.). 8. In cell 136, select either before or after for the time when management would prefer to do the repurchase if they expect good news to come out (1 pt.). 9. In cell 139, select either before or after for the time when management would prefer to do the repurchase if they expect bad news to come out (1 pt.). 10. In cell D44, select either increase or decrease for the expected change in the share price (1 pt.). 11. Save the workbook. Close the workbook and then exit Excel. Submit the workbook as directed.