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XYZ has 1,000 shares outstanding at a price of $100 per share. XYZ decides that instead of its anticipated regular dividend, it will repurchase 200 shares by offering its shareholders to tender shares for a payment of $110 per share. If more than 200 shares are tendered, XYZ will repurchase shares on a pro-rated basis. For example, if 800 shares are tendered, XYZ will buy from each investor 25% of the shares tendered. Ignoring taxes, the price of a share immediately after the repurchase will be ______ and the share price when the tender offer is announced will ___________.

Multiple Choice:
- 97.5, not change
- 97.5, increase
- 97.5, decrease
- less than 97.5, increase
- more than 97.5, decrease

Answer :

if 800 shares are tendered, XYZ will buy from each investor 25% of the shares tendered. Ignoring taxes, The price of a share immediately after the repurchase will be $97.5, and the share price when the tender offer is announced will not change.

What are the shares?

To be able to calculate the price of a share immediately after the repurchase, one need need to know the total number of shares repurchased and the remaining shares left.

Note that:

XYZ has 1000 shares outstanding at a price of $100 per share.

If XYZ repurchases 200 shares at a price of $110 per share, so the total cash outflow for the repurchase is:

200 shares x $110 = $22,000.

Note that If exactly 200 shares are given then:

If XYZ will repurchase all 200 tendered shares, leaving:

1000 - 200 = 800 shares remaining.

The remaining shares will have a value of:

$22,000/ 800 shares = $27.5 per share.

Also, If more than 200 shares are tendered (if 800 shares):

So, if XYZ will repurchase 25% of the tendered shares from each investor.

Then, XYZ will repurchase 25% x 800 shares = 200 shares.

So, the remaining shares will be:

1000 - 200 = 800 shares.

The remaining shares will still have a value of:

$22,000/800 shares = $27.5 per share.

So, As for the share price when the tender offer is said, it is one that remain unchanged at $100 per share due to the fact that the repurchase has not yet taken place.

Learn more about shares from

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