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d'Anconia Copper is an all-equity firm with 60 million shares outstanding,which are currently trading at $20 per share.Last month,d'Anconia announced that it will change its capital structure by issuing $300 million in debt.The $200 million raised by this issue,plus another $200 million in cash that d'Anconia already has,will be used to repurchase existing shares of stock.Assume that capital markets are perfect.
-At the conclusion of this transaction,the number of shares that d'Anconia Copper will repurchase is closest to:
A)5 million.
B)15 million.
C)20 million.
D)40 million.

Question

Quizplus · Accepted Answer

With $200 million raised by the debt issue plus $200 million in cash, d'Anconia will have $400 million to repurchase shares. To determine the number of shares repurchased, divide the total amount available for repurchase ($400 million) by the share price ($20 per share), which equals 20 million shares. Therefore, the correct choice is C) 20 million.

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