LeMahieu Cafe’s most recent FCF was $42 million; the FCF is expected to grow at a...

LeMahieu Cafe’s most recent FCF was $42 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 $20 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 $60 million in preferred stock.

- What is the value of operations?

- Immediately prior to the repurchase, what is the intrinsic value of equity?

- Immediately prior to the repurchase, what is the intrinsic stock price?

- How many shares will remain after the repurchase?

(e) Immediately after the repurchase, what is the intrinsic value of equity? (1 point)

(f) Immediately after the repurchase, what is the intrinsic stock price? (1 point)

(g) What is the value of operations immediately after the repurchase? (1 point)

Solutions

Expert Solution

- What is the value of operations?

FCF Now * (1 + Growth) / (WACC - Growth)

- Immediately prior to the repurchase, what is the intrinsic value of equity?

Value of Operations - Debt - Preferred Stock + Short Term Investments

- Immediately prior to the repurchase, what is the intrinsic stock price?

Stock Price = Value of Equity / Shares O/s

- How many shares will remain after the repurchase?

Shares repurchased = Short Term Investments / Share Price

(e) Immediately after the repurchase, what is the intrinsic value of equity? (1 point)

Value of Equity after repurchase = Value of Equity before repurchase - Short term investments

(f) Immediately after the repurchase, what is the intrinsic stock price? (1 point)

Stock Price = Value of Equity after repurchase / (Current Shares O/s - Shares Repurchased)

(g) What is the value of operations immediately after the repurchase? (1 point)

value of operations immediately after the repurchase = Value of Equity after repurchase + Debt + Preferred Stock

Please dont forget to upvote

jeff jeffy answered 1 year ago

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