Calculate the true share price, Corporate Finance

GeKay stock is worth $100, or $80, or $60. Investors believe that each case is equally likely so that the current share price is the average, namely $80. 

Suppose Mr. Satanak, the company CEO, announces that he will sell most of his holdings of the stock to diversify (and investors believe his motivation).  Diversifying is known to be worth 10% of the share price ---that is, the CEO would be willing to receive up to 10% less than the shares are worth to achieve the benefits of diversification.

a.If investors believe that Mr. Satanak knows the true value of the stock, how will the share price change (be precise here)if he tries to sell? (Assume that any attempt to sell is immediately observable by investors).

b. If he actually goes ahead and sells (for the above reason 16a.), what must be the true share price? Explain briefly but clearly and concisely using complete sentences.

Posted Date: 4/5/2013 5:31:54 AM | Location : United States







Related Discussions:- Calculate the true share price, Assignment Help, Ask Question on Calculate the true share price, Get Answer, Expert's Help, Calculate the true share price Discussions

Write discussion on Calculate the true share price
Your posts are moderated
Related Questions
We consider three methods based on advance demand information. Each of these methods ?rst forecasts total season demand in the upcoming season, denoted by M, for a group of SKUs N

Suppose that Oxford Inc. is interested in the two new products, AME and CGK. Because of its capital budget constraint, it can only launch one new product line. Eric just graduated

The following information is given for Burgundy Plc. The before tax rate on debt is 10%, whereas the required return on equity is 20%. The total amount in use (equity + debt), V, i

Question: A U.S company has a liability of € 10 million in fixed rate loans outstanding at 6%. A German company has a $15 million Floating Rate Note outstanding at LIBOR. The e

Who regulates the stock market and the reason for the need for such standard and heavy regulations

a) Cookie Monster Inc. (a $15 billion snack food company) is considering acquiring Keebler Elves but is unsure of how much is should be willing to pay for the target firm.  At the

CivilENG, LTD has a target capital structure of 35% debt and the remainder common equity. CivilENG’s cost of debt on the first $3 million borrowed is 7.5%, but that cost of debt in

Determine pay back period and net present value? A company is considering two projects with the subsequent cash flow streams:   Year           Project A

you have just been hired as a financial managher of a company that moulds bricks.the firm does not have a proper corporate governance structure.you ar to advice board of directors

what is the agency relationship between shareholders and auditore