Within the context of a stock repurchase, what is meant by a tender offer?
What will be an ideal response?
If management intends to repurchase a block of the firm's outstanding shares three methods for stock repurchase are
available. First, the shares can be bought in the open market. The second method is to make a tender offer to the firm's
shareholders. A tender offer is a formal offer by the company to buy a specified number of shares at a predetermined
and stated price. The tender price is set above the current market price in order to attract sellers. A tender offer is best
when a relatively large number of shares are to be bought because the company's intentions are clearly known and
each shareholder has the opportunity to sell the stock at the tendered price. The third and final method for
repurchasing stock entails purchase of the stock from one or more major stockholders. These purchases are made on a
negotiated basis. Care should be taken to ensure a fair and equitable price; otherwise, the remaining stockholders may
be hurt as a result of the sale.
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Calculate the break-even level of sales, assuming: $1.4 million fixed costs, $400,000 depreciation expense, and variable costs-to-sales ratio of 65 percent.(use the values in dollar)
A) $2,857,143 B) $5,142,857 C) $4,000,000 D) $2,769,231