Question

Cut off date is 26 November, Tuesday, 12 pm Group work: Maximum 2 persons per group XYZ Corp's most recet FCF was $48 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 non operating assets. It has $368 million in debt and $60 million in preferred stock. a. What is the firm's value of operations? b. Immediately prior to the repurchase, what is the intrinsic value of equity? c. Immediately prior to the repurchase, what is the intrinsic stock price? d. How many shares will remain after the repurchase? How many shares will be repurchased? e. Immediately after the repurchase, what is the intrinsic value of equity and stock price? Guidelines: . Students are required to show all the calculations. They should be neatly categorized . Case should be properly typed, printed and presented. No hand written work. Deadline: Should be submitted as hard copy 26th November, Tuesday, 12 pm • Preferred stocks also have to be adjusted after debt and before stocks.

Answer 1

	value of firm		FCF1
			WACC-growth
S.No	Particulars		Amount (million $)		Calculations
a	value of firm		848		48*1.06/(0.12-0.06)
b	Intrinsic value of equity		450		848+30-368-60
	prior to repurchase
c	Intrinsic Stock price		30		450/15
	prior to repurchase
d	Shares repurchased		1		30/30
	Number of shares		14		15million- 1million
	remain after Repurchase
e	Instrinsic value of equity		420		848-368-60
	after repurchase
	Intrinsic Stock price		30		420/14
	after repurchase