AMC Corporation currently has an enterprise value of $400 million and $ 100 million in excess cash. The firm has 10 milion shares outstanding and no debt. Suppose AMC uses its excess cash to repurchase shares. After the share repurchase.newswil come out that will change AMC's enterprise value to either $600 million or $200 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 wait 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 partid), 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 (milli Low enterprise value (millio $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? UM Shares to repurchase ImillionC High share price post repurchase Low share price post repurchase c. Suppose AMC was until after the news comes out to do the share repurchase. What is AMC's share price after the repurchase it is enterprise value goes up? What is AMC's share price after the repurchase its enterprise value declines? High share price post repurchase Lov share price post repurchase d. Suppose AMC management expects good news to come out. Based on your answers to parts b) and lol. 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 is they expect bad news to come out? If management expects the news to be good, it will benefit shareholders if they the news is released If management expects the news to be bad, it will benefit shareholders if they the news is released 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 goodness
