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Compute the share price after the repurchase

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Reference no: EM133002845

Firm A has 15 million shares outstanding, a share price of $25 and no debt. Firm A plans to use actual cash reserves of $7.5 million for repurchasing shares at the current market price. Assume markets are perfectly efficient.

a. Compute the share price after the repurchase.

b. Compute the share price if the $7.5m were distributed as cash dividends to investors.

c. Explain if the results of parts a and b are compatible with M&M irrelevance theorem on dividends? Explain.

Reference no: EM133002845

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