AMC Corporation currently has an enterprise value of $390 million and $120 million in excess cash. The firm has 10 million shares outstanding and no debt. Suppose AMC uses its excess cash to repurchase shares. After the share repurchase, news will come out that will change AMC's enterprise value to either $590 million or $190 million. Suppose AMC management expects good news to come out. If management wants to maximize AMC's ultimate share price, will they undertake the repurchase before or after the news comes out? When would management undertake the repurchase if they expect bad news to come out? What effect would you expect an announcement of a share repurchase to have on the stock price? To maximize its share price, when will AMC prefer to repurchase shares? (Select the best choice below.) O A. After either good or bad news comes out. O B. After good news and before bad news comes out. O C. Before either good or bad news comes out. O D. Before good news and after bad news comes out. Given your answer above, what effect would you expect an announcement of a share repurchase to have on the stock price? (Select the best choice below.) An announcement of a share repurchase implies that management expects good news to come out or that any bad news has already come out, both of which could have a positive impact on the stock price. O An announcement of a share repurchase implies that management expects bad news to come out or that any good news has already come out, both of which could have a positive impact on the stock price.
AMC Corporation currently has an enterprise value of $390 million and $120 million in excess cash. The firm has 10 million shares outstanding and no debt. Suppose AMC uses its excess cash to repurchase shares. After the share repurchase, news will come out that will change AMC's enterprise value to either $590 million or $190 million. Suppose AMC management expects good news to come out. If management wants to maximize AMC's ultimate share price, will they undertake the repurchase before or after the news comes out? When would management undertake the repurchase if they expect bad news to come out? What effect would you expect an announcement of a share repurchase to have on the stock price? To maximize its share price, when will AMC prefer to repurchase shares? (Select the best choice below.) O A. After either good or bad news comes out. O B. After good news and before bad news comes out. O C. Before either good or bad news comes out. O D. Before good news and after bad news comes out. Given your answer above, what effect would you expect an announcement of a share repurchase to have on the stock price? (Select the best choice below.) An announcement of a share repurchase implies that management expects good news to come out or that any bad news has already come out, both of which could have a positive impact on the stock price. O An announcement of a share repurchase implies that management expects bad news to come out or that any good news has already come out, both of which could have a positive impact on the stock price.
Chapter7: Valuation Of Stocks And Corporations
Section: Chapter Questions
Problem 1lM
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Transcribed Image Text:AMC Corporation currently has an enterprise value of $390 million and $120 million in excess cash. The firm has 10 million shares outstanding and no debt. Suppose
AMC uses its excess cash to repurchase shares. After the share repurchase, news will come out that will change AMC's enterprise value to either $590 million or $190
million. Suppose AMC management expects good news to come out. If management wants to maximize AMC's ultimate share price, will they undertake the repurchase
before or after the news comes out? When would management undertake the repurchase if they expect bad news to come out? What effect would you expect an
announcement of a share repurchase to have on the stock price?
To maximize its share price, when will AMC prefer to repurchase shares? (Select the best choice below.)
O A. After either good or bad news comes out.
B. After good news and before bad news comes out.
C. Before either good or bad news comes out.
D. Before good news and after bad news comes out.
Given your answer above, what effect would you expect an announcement of a share repurchase to have on the stock price? (Select the best choice below.)
An announcement of a share repurchase implies that management expects good news to come out or that any bad news has already come out, both of which
could have a positive impact on the stock price.
An announcement of a share repurchase implies that management expects bad news to come out or that any good news has already come out, both of which
could have a positive impact on the stock price.
Click to select your answer.
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