Question

Problem 14-12 Stock Repurchase Bayani Bakery's most recent FCF was $49 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 $365 million in debt and $64 million in preferred stock.

What is the value of operations? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to two decimal places. $ million

Immediately prior to the repurchase, what is the intrinsic value of equity? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to two decimal places. $ million

Immediately prior to the repurchase, what is the intrinsic stock price? Round your answer to the nearest cent. $ per share

How many shares will be repurchased? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. 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 $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to two decimal places. million shares

Immediately after the repurchase, what is the intrinsic value of equity? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to two decimal places. $ million

The intrinsic stock price? Round your answer to two decimal places. $ per share

Answer 1

a) Value of operations (EV) = FCF0 x (1 + g) / (WACC - g) = 49 x (1 + 6%) / (12% - 6%) = $865.67 million

b) EV = Equity + Preferred Stock + Debt - Cash

=> 865.67 = Equity + 64 + 365 - 30

=> Equity = $466.67 million

c) Stock Price = Equity / No. of shares = 466.67 / 15 = $31.11

d) No. of shares repurchased = 30,000,000 / 31.11 = 0.96 million

e) After the repurchase, value of equity = 466.67 - 30 = 436.67 million

f) Stock price = 436.67 / (15 - 0.96) = $31.11