Question

Stock Repurchase Bayani Bakery's most recent FCF was $50 million; the FCF is expected to grow at a constant rate of 6%. The firm's WACC is 10% 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 $364 million in debt and $65 million in preferred stock a. 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 $ b. 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 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 $1.2 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 e. 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

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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 11 A = = = V General A A Wrap Text Merge Merge & Center - Center SF $ % % , 4:0 .00 :.: Insert Delete Format Conditional Format Formatting as Table Styles Cell Styles Fill Clear Sort & Find & Filter Select Editing Alignment Number Cells Calibri E Copy Paste Format Painter BIU - D Clipboard Font 0162 - Five M N 144 145 O PC R W X BAYANI a 146 value of operations = FCF(1+g)/(WACC-g) Value of operations = 50(1+0.06)/(0.1-0.06) Value of operations = 1325 MILLION 147 148 149 150 151 152 153 154 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 = 1325 + 30 = 1355 MILLION intrinsic value of equity = total value of firm - debt - preferred stock intrinsic value of equity = 1355-364 - 65 = 926 MILLION 155 156 157 intrinsic stock price intrinsic value of equity/ no of common shares outstanding 926/15 = 61.73 158 159 160 no of shares repurchased 30 million/61.73= 0.48596 million 0.49 MILLION 161 162 N Rea FCE ARM, MSI, confidenceINDEX CURRENCY LOAN CROSS OVER HEDGING MONEY MARKET GM HPR AM TAX GROWTH SUST OCF CASH FLOW STATW ferences: EV46 PREF AND DIV POLICY_ 0 200 130% 0 + 20-11-2019

NPV, IRR, PBP,OCFINDEX - Microsoft Excel (Product Activation Failed) View Add-Ins File Home Insert Page Layout Formulas Data Review - 2x % Cut Calibri 11 A = = = V General A A Wrap Text Merge Merge & Center - Center Σ AutoSum : A Fill 2 Sort & BIU - D SF $ % % , 4:0 .00 :.: Insert Delete Format Conditional Format Cell Formatting as Table Styles Styles Clear Filter Editing Find & Select Font Alignment Number Cells E Copy Paste Format Painter Clipboard P158 - M 158 Fax N O P Q R V. W X 159 no of shares repurchased 30 million/61.73= 0.48596 million 0.49 MILLION no of shares after repurchase 15 million - 0.48 million = 14.514039 14.51 MILLION 160 161 162 163 164 165 166 167 168 169 170 171 172 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 = 1325 - 364-65 = 896 MILLION after repurchase, intrinsic stock price 896/14.514039 = 61.73 (AS TAXES ARE ABSENT, THE PRICE SHOULD REMAIN SAME) 173 174 175 176 H O FCFARM, MSI, confidenceINDEX CURRENCY LOAN CROSS OVER HEDGING MONEY MARKET GM HPR AM TAX GROWTH SUST CF CASH FLOW STATW ferences: EV46 PREF AND DIV POLICY BOJ 130% * 10 I - Red 0 _+ OPER 9 ENG 20-11-2019