Calculate the true share price, Corporate Finance

Assignment Help:

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.


Related Discussions:- Calculate the true share price

Capital structure, What the implications of the pecking order theory?

What the implications of the pecking order theory?

Compute the expected return, You have ten million dollars to allocate acros...

You have ten million dollars to allocate across two projects, code named 'Wombat' and 'Marmot.' Both projects are somewhat scalable, in that you could potentially invest as much (u

Differentiate fully speculation and arbitraging, Question: (a) With th...

Question: (a) With the help of illustrative and numerical examples differentiate fully speculation and arbitraging in the context of foreign exchange. (b) Shirley, a trade

Evaluate the capital structure, Question: (a) According to Modigliani a...

Question: (a) According to Modigliani and Miller's Theory of Capital Structure (1963), companies should make maximum use of gearing. Briefly, describe factors which might pr

Balance scorecard, hey i need help creating a balance scorecard how long wi...

hey i need help creating a balance scorecard how long will that take >>?

Efficiency, differentiate between allocative efficiency and pricing efficie...

differentiate between allocative efficiency and pricing efficiency.

Solve it please, Question 1 If the economy booms, RTF, Inc. stock is expec...

Question 1 If the economy booms, RTF, Inc. stock is expected to return 10%. If the economy goes into a recessionary period, then RTF is expected to only return 4%. The probability

Finance Project, You have just graduated from Stanford''s MBA program and h...

You have just graduated from Stanford''s MBA program and have secured a position as a fund manager for a well known investment banking house. You have been given $300 million to m

Assignments, I need to know about corporate financial analysis

I need to know about corporate financial analysis

Management, i need a assignment on uk company to be submitted in my colleg...

i need a assignment on uk company to be submitted in my college how can u help

Write Your Message!

Captcha
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