Question

Bayani Bakery's most recent FCF was $45 million; the FCF is expected to grow at a constant rate of 6%. The firm's WACC is 12%, and it has 15 million shares of common stock outstanding. The firm has $30 million in short-term investments, which it plans to liquidate and distribute to common shareholders via a stock repurchase; the firm has no other nonoperating assets. It has $369 million in debt and $63 million in preferred stock.

1. What is the value of operations? Enter your answer in millions. For example, an answer of $1.23 million should be entered as 1.23, not 1,230,000. Round your answer to two decimal places.
   $    million
2. 
   
3. 
   
4. 
   
5. Immediately prior to the repurchase, what is the intrinsic value of equity? Enter your answer in millions. For example, an answer of $1.23 million should be entered as 1.23, not 1,230,000. Round your answer to two decimal places.
   $    million
6. 
   
7. 
   
8. 
   
9. Immediately prior to the repurchase, what is the intrinsic stock price? Round your answer to the nearest cent.
   $    per share
10. 
    
11. 
    
12. 
    
13. How many shares will be repurchased? Enter your answer in millions. For example, an answer of $1.23 million should be entered as 1.23, not 1,230,000. Round your answer to two decimal places.
        million shares
    
    How many shares will remain after the repurchase? Enter your answer in millions. For example, an answer of $1.23 million should be entered as 1.23, not 1,230,000. Round your answer to two decimal places.
        million shares
14. 
    
15. 
    
16. 
    
17. Immediately after the repurchase, what is the intrinsic value of equity? Enter your answer in millions. For example, an answer of $1.23 million should be entered as 1.23, not 1,230,000. Round your answer to two decimal places.
    $    million
    
    The intrinsic stock price? Round your answer to the nearest cent.
    $    per share

Answer 1

1) value of operations = free cash flow(FCF) (1+g) / ( WAAC - g)

= 45(1+0.06)/(0.14-0.06)

=596.25 millions

2) Immediately prior to repurchase, intrinsic value of equity

value of firm = value of operations+ value of current investment

= 596.25+30

=626.25 million

intrinsic value of equity = total value of firm - debt - preferred stock

=626.25-369 -63

=194.25 million

3) intrinsic stock price = intrinsic equity value / number of common stock outstanding

= 194.25/15

= 12.95

4) Number of shares repurchased = 30 million / 12.95

= 2.32 million

5) number of shares repurchased

=15 million - 2.32 million

= 12.68 million

6) (intrinsic value after repurchase)

intrinsic value of equity = value of operations - debt - preferred stock

= 596.25 million - 369 - 63

= 164.25 million

7) after repurchase,

intrinsic stock price = 164.25/12.68 = 12.95