Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

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

Financial Management Theory and Practice

Authors: Eugene F. Brigham, Michael C. Ehrhardt

16th edition

1337902608, 978-1337902601

More Books

Students also viewed these Finance questions