Question

Save Su n t for Grading Problem 15-12 Show Additional Indo 15-9: A Tale of Two Cash Distributions: Dividends versus Stock Repurchases Problem Walk Through Problem 15-12 Stock Repurchase Bayani Bakery's most recent FF was $47 milion; the FO is expected to grow of a constant role of 6%. The firm's WACC IS 14% and it has 15 m on shares of common stock outstanding. There has 50 milion in short-term Investments, which it plans to date and distribute to common shareholders via a stock repurchase the firm has no other operating ass. It has $370 million in and m onin preferred stod 2. What is the value of operations Enter your answer in milions. For example, an answer of $12 million should be entered 1.2.net 1,200,000. Round your answer to two decimal places million b. mediately prior to the repurchase, what is the intrinsic value of equity Enter your answer in mind. For comple, in answer of $1.2 million should be entered as 1.2. no 1.200,000. Round your answer to two dedetallades milion c m ediately prior to the repurchase, what is the intrinsic stock price? Round your answer to the nearest cont. per share . How many shares will be repurchased Enter your answer in milions. For example, an answer of $1.2 milion should be entered as 1.2. no 1.200.000. Round your answer to two decimal places How many shares will remain after the repurchase? Enter your answer in ons. For example, an answer of $1.2 million should be entered a 1.2, 1,200,000. Round you to two decimal places Immediately after the repurchase. what is the intrinsic value of equity Enter your answer in millions. For exampl e of $1.2 milion should be entered a 1.2.net 1.200.000. Round your answer to two decad es stock price? Round your answer to two decimal place 2017

Answer 1

a) Value of operations (EV) = FCF x (1 + g) / (WACC - g) = 47 x (1 + 6%) / (14% - 6%) = $622.75 million

b) Equity = EV - Debt - Preferred + ST Investments = 622.75 - 370 - 61 + 30 = $221.75 million

c) Intrinsic Stock Price = Equity / No. of shares = 221.75 / 15 = $14.78

d) No. of shares repurchased = 30m / 14.78 = 2.03 million

Remaining shares = 15 - 2.03 = 12.97 million

e) Equity Value = $221.75 - 30 = $191.75 million

Price = 191.75 / 12.97 = $14.78