As part of her analysis of the annual distribution policy and its impact on the firm’s value, she makes the following calculations and observations: • The company generated a free cash flow (FCF) of $45.00 million in its most recent fiscal year. • The firm’s cost of capital (WACC) is 14%. The firm has been growing at 10% for the past six years but is expected to grow at a constant rate of 8% in the future. • The firm has 11.25 million shares outstanding. • The company has $120.00 million in debt and $75.00 million in preferred stock. Along with the rest of the finance team, Elle has been part of board meetings and knows that the company is planning to distribute $120.00 million, which is invested in short-term investments, to its shareholders by buying back stock from its shareholders. Elle also observed that, at this point, apart from the $120.00 million in short-term investments, the firm has no other nonoperating assets. Using results from Elle’s calculations and observations, solve for the values in the following tables. (Note: Round your answers to two decimal places.) Value Value of the firm’s operations ? Intrinsic value of equity immediately prior to stock repurchase ? Intrinsic stock price immediately prior to the stock repurchase ?
As part of her analysis of the annual distribution policy and its impact on the firm’s value, she makes the following calculations and observations: • The company generated a free cash flow (FCF) of $45.00 million in its most recent fiscal year. • The firm’s cost of capital (WACC) is 14%. The firm has been growing at 10% for the past six years but is expected to grow at a constant rate of 8% in the future. • The firm has 11.25 million shares outstanding. • The company has $120.00 million in debt and $75.00 million in preferred stock. Along with the rest of the finance team, Elle has been part of board meetings and knows that the company is planning to distribute $120.00 million, which is invested in short-term investments, to its shareholders by buying back stock from its shareholders. Elle also observed that, at this point, apart from the $120.00 million in short-term investments, the firm has no other nonoperating assets. Using results from Elle’s calculations and observations, solve for the values in the following tables. (Note: Round your answers to two decimal places.) Value Value of the firm’s operations ? Intrinsic value of equity immediately prior to stock repurchase ? Intrinsic stock price immediately prior to the stock repurchase ?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
As part of her analysis of the annual distribution policy and its impact on the firm’s value, she makes the following calculations and observations:
| • | The company generated a |
| • | The firm’s cost of capital (WACC) is 14%. The firm has been growing at 10% for the past six years but is expected to grow at a constant rate of 8% in the future. |
| • | The firm has 11.25 million shares outstanding. |
| • | The company has $120.00 million in debt and $75.00 million in |
Along with the rest of the finance team, Elle has been part of board meetings and knows that the company is planning to distribute $120.00 million, which is invested in short-term investments, to its shareholders by buying back stock from its shareholders. Elle also observed that, at this point, apart from the $120.00 million in short-term investments, the firm has no other nonoperating assets.
Using results from Elle’s calculations and observations, solve for the values in the following tables. (Note: Round your answers to two decimal places.)
|
|
Value
|
|---|---|
| Value of the firm’s operations | ? |
| Intrinsic value of equity immediately prior to stock repurchase | ? |
| Intrinsic stock price immediately prior to the stock repurchase | ? |
|
|
Value
|
|---|---|
| Number of shares repurchased | ? |
| Intrinsic value of equity immediately after the stock repurchase | ? |
| Intrinsic stock price immediately after the stock repurchase | ? |
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 1 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education