Bird Houses is an all-equity firm with a total market value of $388,980 and18,000 shares of stock outstanding. Management is considering issuing $68,000 of debt at an interest rate of 6.5 percent and using the proceeds on a stock repurchase. Ignore taxes. How many shares will the firm repurchase if it issues the debt securities? (Round the number of shares repurchased down to the nearest whole share.)

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Business

Sage

14 July, 08:37

Bird Houses is an all-equity firm with a total market value of $388,980 and18,000 shares of stock outstanding. Management is considering issuing $68,000 of debt at an interest rate of 6.5 percent and using the proceeds on a stock repurchase. Ignore taxes. How many shares will the firm repurchase if it issues the debt securities? (Round the number of shares repurchased down to the nearest whole share.)

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Ivan Richard · Answer 1

The number of shares that can be repurchased with $68,000 proceeds from issue of debt instrument is 3,147 shares as calculated below

Explanation:

The company's price per share is $21.61 ($388980/18000), hence the number of shares that can be repurchased with $68000 is computed thus:

number of shares to be repurchased=$68000/$21.61

=3146.691347

The number of shares to be repurchased is approximately 3147 shares