Cash-2-Day currently trades for $13.Analysts regard it as fairly valued at its current price.The company has announced that it intends to spend $180 million on an open market repurchase.Management claims that the company's shares are occasionally undervalued and that buying shares at undervalued prices represents a good investment.Assume that the company is able to repurchase shares at a price of $12.There are 275 million shares outstanding prior to the repurchase.What stock price prevails after the repurchase?

Question

Quizplus · Accepted Answer

P_A = P_B 11ea7fdb_fc54_26ab_a768_65788b44b3ae_TB2902_11 - P_R 11ea7fdb_fc54_26ac_a768_3f1ad65b4839_TB2902_11 First, calculate f: The quantity purchased is: N_R = 11ea7fdb_fc54_26ad_a768_77d073285db7_TB2902_11 = 15,000,000 f = 11ea7fdb_fc54_26ae_a768_d3403017fd1d_TB2902_11 = 11ea7fdb_fc54_26af_a768_0d3e5c37e96f_TB2902_11 = 0.05455 Then, calculate P_A: P_A = $13 × 11ea7fdb_fc54_26b0_a768_2d33c49dcfe4_TB2902_11 - $12 × 11ea7fdb_fc54_26b1_a768_6ba3bf82b85b_TB2902_11 P_A = $13.75 - 0.6923 P_A = $13.05769 P_A = $13.06

Cash-2-Day Currently Trades for $13