AMC Corporation currently has an enterprise value of $350 million and $105 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 $550 million or $150 million. 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? 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? 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 answer to (d), what effect would you expect an announcement of a share repurchase to have on the stock price? Why? a. What is AMC's share price prior to the share repurchase? AMC's share price prior to the share repurchase is $ (Round to the nearest cent.) 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? AMC's share price after the repurchase if its enterprise value goes up is $ (Round to the nearest cent.) AMC's share price after the repurchase if its enterprise value declines is $. (Round to the nearest cent.) 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? If AMC waits until after the news comes out to do the share repurchase, the share price after the repurchase if its enterprise value goes up is $ If AMC waits until after the news comes out to do the share repurchase, the share price after the repurchase if its enterprise value declines is $ (Round to the nearest cent.) 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? To maximize its share price, AMC will prefer to repurchase shares (Select the best choice below.) A. Before either good or bad news comes out. B. After good news and before bad news comes out. C. After either good or bad news comes out D. Before good news and after bad news comes out. e. Given your answer to (d), what effect would you expect an announcement of a share repurchase to have on the stock price? Why? (Select the best choice below.) the stock price. the stock price
