Question

1. Firm F has 3 million shares outstanding, of which you own 0.5%. The executives decide to raise money by issuing an additional 500,000 shares. Based on the Preemptive Right, how many shares can you choose to purchase at the issue price?
   • 3500 shares
   • 5000 shares

• • 3000 shares

• • 2500 shares

2. What is the intrinsic value of a single share of stock given the information below?

• Cash:                     20
• CapEx:                  90
• FCFF (today):     60
• Fixed Assets:     300
• Net Debt:            200
• WACC:                  7%
• cost of debt:      4%
• # of shares:        15
• growth rate:       2%
• tax rate:               27%

$64.13
		$68.27
		$62.49
		$66.67

Answer 1

Q-1)

- % percentage of ownership in Firm F = 0.5%

No of additional shares issued = 500,000

In Preemptive Rights, existing shareholders are given right to maintain there holding % in case of additional shares are issued. Existing shareholders are offered the additional shares before offering to gerneral public.

Number of shares you can choose to purchase at the issue price = 500,000 shares*0.5% = 2500 shares

Option 4

Q-2)

Free cash flow(FCFF) Today = 60

Growth rate(g) = 2%

b). Calculating the Enterprise Value(EV):-

EV = 1224

- Enterprise Value = Market Value of equity + Market Value of Debt

1224 = Market Value of equity + 200

Market Value of equity= 1024

- Intrinsic Price per share = Market Value of equity/No of shares outstanding

Intrinsic Price per share = 1024/15

Intrinsic Price per share = 68.27

Option 2

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