Question

Bayani Bakery's most recent FCF was $47 million; the FCF is expected to grow at a constant rate of 6%. The firm's WACC is 11% 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 $362 million in debt and $56 million in preferred stock.

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

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

Immediately prior to the repurchase, what is the intrinsic stock price? Round your answer to the nearest cent.
$   per share

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

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

Solution :

FCF = 47 million, WACC = 11% , Growth = 6%

Question 1 .

Value of operation = FCF * ( 1 + growth) /( WACC- Growth) = 47 * 1.06 /(0.11-0.06) = 49.82/0.05 = 996.40 million

Question 2 .

Firm value = value from operation + Non-operating value ( 30 million from short term investment )

The intrinsic value of equity = Value of firm ( Value of operation + value of non-operating asset) - debt - preference share = 996.40 +30 -362 -56 = 608.40

Question 3 .

Number of share = 15 million

Intrinsic share value = intrinsic equity value / number of share = 608.4 /15 = 40.56

Question 4.

Amount used for share purchase = 30 million

No of shares that can be purchased = 30 million / 40.56 = 0.739 = 0.74 million

Quetion 5.

No of shares that will be remained after repurchase = Earlier no of share - repurchase = 15 - 0.74 = 14.26 million

Question 6 .

After the repurchase

Firm value = 996.40, as non-operating has been sold

Equity value = 996.40 - 362 - 56 = 578.40

Question 7

Stock price = New equity value / new number of share = 578.40 / 14.26 = 40.56