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Thompson amp; Thomson is an all-equity firm that has 280,000 shares of stock outstanding. The company is in the process of borrowing $2.4 million at 5.5 percent interest to repurchase 75,000 shares of the outstanding stock. What is the value of this firm if you ignore taxes?

Respuesta :

Answer:

The value of the firm if we ignore taxes would be $8.96 million.

Explanation:

Given information -

Thompson number of outstanding shares - 280,000

Price of 75,000 outstanding shares - $2.4 million

Note - here since Thompson is repurchasing its 75,000 outstanding shares, the interest of 5.5 % doesn't have to be paid yet, therefore this will not be taken in to account when taking out the value of the firm.

Formula for taking out value of firm =

Price for repurchasing of shares x Total number of outstanding share /

                                                                              Shares repurchased

= $2.4 million x 280,000  /  75,000

= $8.96 million

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