Question
Ingram Micro Berhad currently has an enterprise value of RM300,000,000 and RM75,000,000 in excess cash. Ingram Micro is a debt free firm with 7,500,000 shares
Ingram Micro Berhad currently has an enterprise value of RM300,000,000 and RM75,000,000 in excess cash. Ingram Micro is a debt free firm with 7,500,000 shares outstanding. Suppose Ingram uses its excess cash to repurchase
shares. After the share repurchase, news released and stated that repurchase will change Ingram's enterprise value to either RM450,000,000 or RM150,000,000.
(b) Compute
(i) Ingram's share price after the repurchase if its enterprise value goes up.
(ii) Ingram's share price after the repurchase if its enterprise value declines.
(6 marks)
(c) Suppose Ingram waits until after the news released to public before Ingram exercise share repurchase, estimate
(i) Ingram's share price after the repurchase if its enterprise value goes up.
(ii) Ingram's share price after the repurchase if its enterprise value declines.
(6 marks)
(d) Suppose Ingram management expects good news to be announced. Based on your answers to parts (b) and (c), if management desires to maximize Ingram's ultimate share price. Decide whether they will undertake the
repurchase before or after the news releases. Justify when would management undertake the repurchase if they expect bad news to about to release. (6 marks)
(e) Given your answer to part (d), explain the effect that you would expect an announcement of a share repurchase to have on the stock price. ( 5 marks)
Step by Step Solution
3.38 Rating (145 Votes )
There are 3 Steps involved in it
Step: 1
b i To compute Ingrams share price after the repurchase if its enterprise value goes up we need to calculate the new enterprise value and then divide ...Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started