Simpson's is an all-equity firm that has 400,000 shares of stock outstanding.The company is in the process of borrowing $1.5 million at 5 percent interest to repurchase 30,000 of the firm's outstanding shares.Ignore taxes.What will be the market value of equity after the repurchase?
A)$20.0 million
B)$19.2 million
C)$18.5 million
D)$19.8 million
E)$18.9 million

Question

Quizplus · Accepted Answer

Price per share = $1,500,000 / 30,000 = $50
Equity value after repurchase = $50(400,000 - 30,000)= $18,500,000,or $18.5 million

Simpson's Is an All-Equity Firm That Has 400,000 Shares of Stock