If possible, please show work. I am trying to understand how to get to the correct answers but keep getting it wrong. :(
Value of firm's operations = FCF0 x (1 + g) / (r - g) = 75 x (1 + 8%) / (15% - 8%) = 1,157.14 million
Value of equity = Value of operations + Cash - Debt - Preferred Stock = 1157.14 + 120 - 200 - 125 = 952.14 million
Stock Price = Value of equity / No. of shares = 952.14 / 18.75 = $50.78
No. of shares repurchased = 120 / 50.78 = 2.36 million shares
Value of equity = Value of operations - Debt - Preferred Stock = 1157.14 - 200 - 125 = 832.14
Stock Price = 832.14 / (18.75 - 2.36) = $50.78
The statement is correct because the stock will fall to prevent any arbitrage opportunities.
If possible, please show work. I am trying to understand how to get to the correct...
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