Epic Trucking’s equity has a market value of $15 million with 700,000 shares outstanding. The book value of its equity is $9 million.
a. What is Epic’s stock price per share? What is its book value per share?
b. If the company repurchases 25 percent of its shares in the stockmarket at their current price, how will this affect the book value ofequity if all else remains the same?
c. If there are no taxes or transaction costs, and investors do notchange their perceptions of the firm, what should the market valueof the firm be after the repurchase?
d. Instead of a share repurchase, the company decides to raisemoney by selling an additional 20 percent of its shares on themarket. If it can issue these additional shares at the currentmarket price, how will this affect the book value of equity if allelse remains the same?
e. If there are no taxes or transaction costs, and investors do not change their perception of the firm, what should the market value of the firm be after this stock issuance? Its price per share?
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