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.)

Question

Bryan Maynard

Business

25 November, 18:26

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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Brian Douglas · 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