A firm’s most recent FCF was $2.4 million, and its FCF is expectedto grow at a constant rate of 5%. The firm’s WACC is 14%, and ithas 2 million shares outstanding. The firm has $12 million in shortterm investments that it plans to liquidate and then distribute ina stock repurchase; the firm has no other financial investments ordebt. Verify that the value of operations is $28 million. Immediatelyprior to the repurchase, what are the intrinsic value of equity andthe intrinsic stock price? ($40 million; $20/share) How manyshares will be repurchased? (0.6 million) How many shares willremain after the repurchase? (1.4 million) Immediately after therepurchase, what are the intrinsic value of equity and the intrinsicstock price? ($28 million; $20/share)
A firm’s most recent FCF was $2.4 million, and its FCF is expected
to grow at a constant rate of 5%. The firm’s WACC is 14%, and it
has 2 million shares outstanding. The firm has $12 million in shortterm investments that it plans to liquidate and then distribute in
a stock repurchase; the firm has no other financial investments or
debt. Verify that the value of operations is $28 million. Immediately
prior to the repurchase, what are the intrinsic value of equity and
the intrinsic stock price? ($40 million; $20/share) How many
shares will be repurchased? (0.6 million) How many shares will
remain after the repurchase? (1.4 million) Immediately after the
repurchase, what are the intrinsic value of equity and the intrinsic
stock price? ($28 million; $20/share)
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