Question
Levy Corp. is an unlevered firm worth $507,000 (market value). There are 14,000 shares of stock outstanding. The company just announced that, to change the
Levy Corp. is an unlevered firm worth $507,000 (market value). There are 14,000 shares of stock outstanding. The company just announced that, to change the capital structure, it will repurchase $22,400 worth of stock with borrowed fund in six months. The tax rate for the firm is 20%. If the stock market is efficient, which of the following is correct according to MM propositions?
| The stock price should not react to the repurchase because the repurchase has no impact on firm value. | ||
| The stock price will not react to the repurchase upon the repurchase is announced. | ||
| The stock price will not react to the repurchase upon the repurchase is complete. | ||
| The stock price can react to the repurchase any time between announcement and implementation. |
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Agricultural Finance
Authors: Charles Moss
1st Edition
0415599075, 978-0415599078
