Use the Information for the Question(s)below

question 24

Multiple Choice

Use the information for the question(s) below.
Rockwood Industries has 100 million shares outstanding,a current share price of $25,and no debt.Rockwood's management believes that the shares are underpriced,and that the true value is $30 per share.Rockwood plans to pay $250 million in cash to its shareholders by repurchasing shares.Management expects that very soon new information will come out that will cause investors to revise their opinion of the firm and agree with Rockwood's assessment of the firm's true value.
-Assume that Rockwood is able to repurchase shares prior to the market becoming aware of the new information regarding Rockwood's true value.After the repurchase,and following the release of the new information regarding the true value of Rockwood,the firm's share price is closest to:

• A)$30.00.
• B)$31.50.
• C)$28.75.
• D)$30.60.

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Definitions:

Sunk Costs

Expenses that have already been incurred and cannot be recovered or altered by future actions or decisions.

Long-Run Decisions

Decisions in business or economics that affect operations over a longer time period, often related to investment, expansion, or strategic planning.

Short-Run Decisions

Decisions made by businesses affecting operations within a period of less than one year, often focusing on immediate operational and financial outcomes.

Opportunity Costs

The potential benefits missed out on when choosing one alternative over another.