Financial Management: Theory & Practice
15th Edition
ISBN: 9781337248006
Author: Eugene F. Brigham; Michael C. Ehrhardt
Publisher: Cengage Learning US
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Textbook Question
Chapter 14, Problem 12P
Bayani Bakery’s most recent FCF was $48 million; the FCF is expected to grow at a constant rate of 6%. The firm’s WACC is 12%, 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 $368 million in debt and $60 million in
- a. What is the value of operations?
- b. Immediately prior to the repurchase, what is the intrinsic value of equity?
- c. Immediately prior to the repurchase, what is the intrinsic stock price?
- d. How many shares will be repurchased? How many shares will remain after the repurchase?
- e. Immediately after the repurchase, what is the intrinsic value of equity? The intrinsic stock price?
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(d) Estimate the value of a share of Cisco common stock using the discounted cash flow (DCF) model as of July 27, 2019 using the following assumptions
Assumptions
Discount rate (WACC)
Common shares outstanding
7.60%
5,029.00 million
Net nonoperating obligations (NNO) $(8,747) million
NNO is negative, which means that Cisco has net nonoperating investments
CSCO
($ millions)
DCF Model
Reported
2019
Forecast Horizon
2020 Est.
2021 Est.
2022 Est.
2023 Est.
Terminal
Period
Increase in NOA
FCFF (NOPAT - Increase in NOA)
$
1241
1303
1368
10673
11207
11767
1437 $
12354
302 ✓
Present value of horizon FCFF
9918
9679
9445 ✔
0 ×
Cum. present value of horizon FCFF $
0 ×
Present value of terminal FCFF
0 ☑
Total firm value
0 ☑
NNO
-8747 ✓
Firm equity value
$
0 ☑
Shares outstanding (millions)
5029
Stock price per share
$
40.05
Don't used hand raiting and don't used Ai solution
Don't used hand raiting and don't used Ai solution
Chapter 14 Solutions
Financial Management: Theory & Practice
Ch. 14 - How would each of the following changes tend to...Ch. 14 - What is the difference between a stock dividend...Ch. 14 - One position expressed in the financial literature...Ch. 14 - Indicate whether the following statements are true...Ch. 14 - Puckett Products is planning for $5 million in...Ch. 14 - Petersen Company has a capital budget of 1.2...Ch. 14 - The Wei Corporation expects next year’s net income...Ch. 14 - A firm has 10 million shares outstanding with a...Ch. 14 - Prob. 5PCh. 14 - Gardial GreenLights, a manufacturer of...
Ch. 14 - Suppose you own 2,000 common shares of Laurence...Ch. 14 - Fauver Enterprises declared a 3-for-1 stock split...Ch. 14 - Harris Company must set its investment and...Ch. 14 - Prob. 11PCh. 14 - Bayani Bakerys most recent FCF was 48 million; the...Ch. 14 - Integrated Waveguide Technologies (IWT) is a...Ch. 14 - Discuss the effects on distribution policy...Ch. 14 - c. (1) Assume that IWT has completed its IPO and...Ch. 14 - (1) Describe the procedures a company follows when...Ch. 14 - Discuss the advantages and disadvantages of a firm...Ch. 14 - Suppose IWT has decided to distribute 50 million,...Ch. 14 - Describe the series of steps that most firms take...Ch. 14 - What are stock splits and stock dividends? What...Ch. 14 - What is a dividend reinvestment plan (DRIP), and...
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