How will a share repurchase affect the value of the firm

Assignment Help Financial Management
Reference no: EM131329433

Megaware Incorporated is a technology firm that was founded eight years ago by John Thompson and Jill Dillman. Megaware manufactures various hardware and software components. Its products are used in personal computers and other peripheral devices. In addition to John and Jill, Nick Jones is also an owner of the firm because he provided capital. Each of the three owns 20 percent of the company. The current employees own the remaining part of the company. The firm recently developed a new computer hardware component. The component is supposed to be more energy efficient and less costly to produce. After investigating the possibility of manufacturing the new hardware component, Megaware determined that constructing a new plant would be too costly. John, Jill, and Nick do not want to bring in another outside investor, so Megaware has decided to sell the hardware component for an after-tax payment of $42 million. ick contends that a share repurchase will increase the company's ROA, ROE, and P/E ratio. Do you agree? How will a share repurchase affect the value of the firm?

Reference no: EM131329433

Questions Cloud

Rights offerings-the ex-rights price-the value of a right : Rights offerings: Borkin Incorporated is proposing a rights offering. Currently, there are 560,000 shares outstanding at $85 each. There will be 65,000 new shares offered at $78 each. Calculate each of the following: The new market value of the compa..
Cash equation-what are the current assets : Cash equation: Bettendorf Corporation has a book net worth of $17,800. The company's long-term debt is $6,900. Its net working capital, excluding cash, is $1,600. Its fixed assets are $21,300. How much cash does the company have? If the current liabi..
Discuss how earnings quality issues : Discuss how “earnings quality issues” would be identified (in other words, which financial statements and other Company disclosures would be reviewed to identify earnings quality issues).
What is the annual interest tax shields : Establishment industries borrows $800 million at an interest rate of 7.6%. What is the annual interest tax shields? if the establishment expects to maintain this debt level into the far future, what is the PV of interest tax shields? How would your a..
How will a share repurchase affect the value of the firm : Megaware Incorporated is a technology firm that was founded eight years ago by John Thompson and Jill Dillman. Megaware manufactures various hardware and software components. Its products are used in personal computers and other peripheral devices. H..
Stock dividends-calculate the ex-dividend price : Stock dividends: The market value balance sheet for Outland Manufacturing is shown in the table below. Outland has declared a 20 percent stock dividend. The stock goes ex-dividend tomorrow. (Chronology for a stock dividend is similar to that for a ca..
Use excess cash flow to pay a special one-time dividend : Megaware Incorporated is a technology firm that was founded eight years ago by John Thompson and Jill Dillman. Megaware manufactures various hardware and software components. Its products are used in personal computers and other peripheral devices. J..
Use the excess cash flow to pay off debt : Megaware Incorporated is a technology firm that was founded eight years ago by John Thompson and Jill Dillman. Megaware manufactures various hardware and software components. Its products are used in personal computers and other peripheral devices. J..
What must be one-year forward exchange rate : If the interest rate in the United Kingdom is 10 percent, the interest rate in the United States is 12 percent, the spot exchange rate is $1.6821/£1, and interest rate parity holds, what must be the one-year forward exchange rate?

Reviews

Write a Review

Financial Management Questions & Answers

  What principal remains to be paid after the third payment

A $10,000 loan is to be repaid at the rate of $200 per month, with an annual effective interest rate of 19.56% charged against the unpaid balance. What principal remains to be paid after the third payment?

  An investor can design risky portfolio based on two stocks

An investor can design a risky portfolio based on two stocks, A and B. Stock A has an expected return of 21% and a standard deviation of return of 39%. Stock B has an expected return of 14% and a standard deviation of return of 20%. The proportion of..

  What was dividend yield and capital gains yield

Suppose a stock had an initial price of $72 per share, paid a dividend of $1.20 per share during the year, and had an ending share price of $61. Compute the percentage total return. What was the dividend yield and the capital gains yield?

  Sensitivity analysis

Consider a 10-year project with the following information: initial fixed asset investment = $340,000; straight-line depreciation to zero over the 10-year life; zero salvage value; price = $39; variable costs = $15; fixed costs = $163,200; quantity so..

  An interest-earning account

You currently have $67,000 in an interest-earning account. From this account, you wish to make 20 year-end payments of $5,000 each. What annual rate of return must you make on this account to meet your objective?

  What is the total return on this stock

Suppose a stock had an initial price of $74 per share, paid a dividend of $0.80 per share during the year, and had an ending share price of $76. What was the capital gains yield?  What was the dividend yield?  What is the total return on this stock?

  Minimum cost and short range profit maximization policies

What is the difference between minimum total cost and short-range profit maximization policies in system design?

  Compute the budgeted cash receipts

Assume 20% of Turks's sales are for cash. The remaining 80% are credit sales;- Compute the budgeted cash receipts for June.

  What is the value of one share of this stock today

You own 200 shares of Loner, Inc. stock. The company has stated that it plans on issuing a dividend of $.20 a share one year from today and then issuing a final liquidating dividend of $1.60 a share two years from today. Your required rate of return ..

  What is dollar amount of cash flows that baxter will receive

Baxter plans to hedge its cash flows with a forward contract. What is the dollar amount of cash flows that Baxter will receive in five years if it accepts this project?

  How incorporating will affect the richards familys ability

Explain how incorporating will affect the Richards family's ability to transfer ownership to their children. Justify Jake's concerns with hiring professional management.

  What is future value of ordinary annuity with equal payments

What is the present value of $25000 to be received in 13 years if the interest rate is 11% and compounds once per year?  What is the future value of an ordinary annuity with equal payments of $450 being deposited into a money market account at the en..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd