Use the Information for the Question(s)below

question 61

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 not able to repurchase shares prior to the market becoming aware of the new information regarding Rockwood's true value.After the release of the new information regarding the true value of Rockwood,and following the repurchase,the firm's share price is closest to:

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

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Definitions:

Callable Bonds

Securities that the issuer has the right to repurchase before they reach their due date, for a predefined amount.

Market Rate

The prevailing rate of interest available in the marketplace for securities of similar risk and maturity.

Face Value

The nominal value printed on a financial instrument like a bond or stock certificate, not necessarily its current market value.

Effective Interest Rate

The actual cost of borrowing or the actual yield on savings, taking into account the compounding of interest over time.