Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Edi Q3 (20 marks) Randy, Inc. has a shareholding structure of 100% with equity. As per the data, the company holds 100,000 shares of stock

image text in transcribed

Edi Q3 (20 marks) Randy, Inc. has a shareholding structure of 100% with equity. As per the data, the company holds 100,000 shares of stock outstanding with a market price of $5 per share. As per the results, Total earnings for the most recent year are $50,000. In addition, The company has cash of $25,000 in excess of what is necessary to fund its positive NPV projects. The firm is forecasting to utilize the cash to pay an extra dividend of $25,000 or, alternatively, to repurchase $25,000 of stock. The company has other assets worth $475,000 (market value). Also assume there are no transaction costs, taxes, or other market imperfections. It is being assumed that the firm uses the $25,000 excess cash to buy back stock at $5 per share. You own 1,000 shares before the repurchase and this comprises your total wealth. In case, If you sold none of your shares back to the firm, what is your total wealth after the repurchase is completed

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Survey Of Accounting

Authors: Carl S. Warren

1st Edition

0538870850, 9780538870856

More Books

Students also viewed these Accounting questions

Question

Eta squared provides information about the size of the ____.

Answered: 1 week ago

Question

discuss the importance of ethical practice for the HR profession;

Answered: 1 week ago

Question

reference your work in a credible way.

Answered: 1 week ago

Question

read in a critically evaluative way;

Answered: 1 week ago