Question

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 14%, 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 $57 million in preferred stock. a. 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 b. 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 c. Immediately prior to the repurchase, what is the intrinsic stock price? Round your answer to the nearest cent. per share d. 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

Answer 1

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NPV, IRR, PBP,OCFINDEX - Microsoft Excel (Product Activation Failed) View Add-Ins File Home Insert Page Layout Formulas Data Review - 2x % Cut Σ AutoSum : A Calibri 11 A = = V General A A = E Wrap Text Merge Merge & Center Center B I U D SF $ - % % 4:0 .00 8. Insert Delete Format Conditional Format Formatting as Table Styles Cell Styles Fill Clear Sort & Filter Editing Find & Select Alignment Number Cells Font fx E Copy Paste Format Painter Clipboard P65 - N 64 65 O P Q W 66 67 68 value of operations = FCF(1+g)/(WACC-g) Value of operations = 49(1+0.06)/(0.14-0.06) Value of operations = 69 649.25 MILLION 70 71 72 73 Immediately prior to repurchase, intrinsic value of equity total value of the firm = value of operations + value of short term investment total value of the firm = 649.25 +30 = 679.25 MILLION intrinsic value of equity = total value of firm - debt - preferred stock intrinsic value of equity = 679.25 -365-57 = 257.25 MILLION 74 75 76 77 17.15 intrinsic stock price 257.25/15 = intrinsic value of equity/ no of common shares outstanding 78 79 80 no of shares repurchased 30 million/17.15 = 1.7493 million 81 rounding 1.75 million 82 H O FCFARM, MSI,confidenceINDEX CURRENCY LOAN CROSS OVER HEDGING MONEY MARKET GM HPR AM TAX GROWTH SUST I CF CASH FLOW STATW ferences: EV49 Rea PREF AND DIV POLICY 200 130% * * O 0 + 2. 9 ENG 30-11-2019

NPV, IRR, PBP,OCFINDEX - Microsoft Excel (Product Activation Failed) View Add-Ins Formulas Data Review - 2x A B 11 A = = V D A A = E Wrap Text Merge Merge & Center Center L AutoSum" AY SF $ - % % 4:0 .00 8. Insert Delete Format Conditional Format Formatting as Table Styles Cell Styles Σ AutoSum : A Fill Sort & Clear Filter Editing Find & Select Alignment Number File Home Insert Page Layout % Cut Calibri E Copy Paste Format Painter B I U D Clipboard Font 096 - for N O P 79 80 Cells Q RS W d no of shares repurchased 30 million/17.15 = 1.7493 million rounding = 1.75 million no of shares are repurchase 15 million - 1.7493 million = 13.2507 million rounding = 13.25 MILLION 87 88 After repurchase, intrinsic value as short term investments are sold off intrinsic value of equity = value of operations - debt -preferred stock intrinsic value of equity = 649.75 -365-57 = 227.25 MILLION 89 90 91 92 93 94 95 After repurchase, intrinsic stock price 227.25/13.2507 = 17.15 96 K N FCFARM, MSI,confidenceINDEX CURRENCY LOAN CROSS OVER HEDGING MONEY MARKET GM HPR AM TAX GROWTH SUST I OCF CASH FLOW STATW ferences: EV46 PREF AND DIV POLICY 20J 130% Rea 0 + D E R 9 * * OENG 30-11-2019

NPV, IRR, PBP,OCFINDEX - Microsoft Excel (Product Activation Failed) View Add-Ins Formulas Data Review - 2x 11 A = = V General A A = E Wrap Text Merge Merge & Center Center SF $ - % % 4:0 .00 8. Insert Delete Format Conditional Format Formatting as Table Styles Cell Styles Σ AutoSum : A Fill Sort & Clear Filter Editing Find & Select Alignment Number Cells File Home Insert Page Layout % Cut Calibri Ea Copy Paste Format Painter B I U D Clipboard Font 596 N O P 79 80 Q R W 4 no of shares repurchased 30 million/17.15 = 1.7493 million rounding = 1.75 million 5 no of shares are repurchase 15 million - 1.7493 million = 13.2507 million rounding = 13.25 MILLION 87 88 89 6 After repurchase, intrinsic value as short term investments are sold off intrinsic value of equity = value of operations - debt -preferred stock intrinsic value of equity = 649.75 - 365 -57 = 227.25 MILLION 90 91 92 93 94 95 7 After repurchase, intrinsic stock price 227.25/13.2507 = 17.15 96 K N FCFARM, MSI,confidenceINDEX CURRENCY LOAN CROSS OVER HEDGING MONEY MARKET GM HPR AM TAX GROWTH SUST OCF CASH FLOW STATW ferences: EV49 PREF AND DIV POLICY BOJ 130% . * * O I - Rea 0 _+ 2. B 9 ENG 30-11-2019