Question

How much would it cost for Chester Corporation to repurchase all its outstanding shares if new brokerage fees totaled 1% of the underlying transaction?

Select: 1

$85.3 million

$76.4 million

$83.7 million

$78.0 million

Answer 1

Answer:

$78.0 million

Explanation:

Cost of repurchase = Number of shares*Share price/(1-1%)

Cost of repurchase = $3,352,720 * $23.02/(1-1%)

Cost of repurchase = $3,352,720 * $23.02/(1 - 0.01)

Cost of repurchase = $3,352,720 * $23.02/0.99

Cost of repurchase = $3,352,720 * $23.25

Cost of repurchase = $ 77,950,740

Cost of repurchase = $78.0 million

Answer 2

The corporation would cost $78.0 million to repurchase all its shares back from the market.

The new brokerage fees are given as 1% of the transaction.  The cost of purchase would be derived out of the given formula:

$c= \frac{n*Sp}{1-1 percent} \\=\frac{3,352,720 * 23.02}{1 - 0.01} \\=78.0$

Here, c is the repurchase cost, n is the number of shares, and Sp is the share price. Finally, the repurchase cost is computed as $78 million.

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