Question
Problem: PGM Limited currently has an enterprise value (EV) of $ $360 million and $110 million in excess cash. The firm has 10 million shares
Problem:
PGM Limited currently has an enterprise value (EV) of $ $360 million and $110 million in excess cash. The firm has 10 million shares outstanding and no debt. Suppose PGM uses its excess cash to repurchase shares. After the share repurchase, news will come out that will change PGM's enterprise value to either $ 560 million or $160 million. a. What is PGM's share price prior to the share repurchase?
Answer: Enterprise value= Equity+debt-cash
=$360m +$110m= $470m
Share price = Equity/ (# shares outstanding)
PGMs share price prior to the share repurchase is 470m/10m= $47
My question: if $10 million in excess cash then why isn't cash being subtracted in the enterprise value equation?
Thanks
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