A firm has an excess cash flow of $4.8m. It had 3m shares outstanding and was...

Note: The term “k” is used to represent thousands (× $1,000).

Required: What would be the average portfolio value after a re-purchase scenario?

$Answer Do not round intermediate calculations. Input your answer in thousands ($k) rounded to 3 decimal places (for example: 28.31k).

Solutions

Expert Solution

Sol:

Excess cash flow = $4.8 million

Outstanding shares = 3 million

Dividend payout ratio = 40%

Market price per share = $88

Average investor holding = 176 shares

The process to determine average portfolio value after a re-purchase scenario is as follows:

Current market capitalization = Outstanding shares x Market price per share

Current market capitalization = 3 million x $88 = $264 million

Dividend payout = Excess cash flow x Dividend payout ratio

Dividend payout = 4.8 million x 40% = $1.92 million

Market capitalization post dividend payout = Current market value - Dividend payout ratio

Market capitalization post dividend payout = $264 million - $1.92 million = $262.08 million

Price per share post dividend payout = Market capitalization post dividend payout / Outstanding shares

Price per share post dividend payout = $262.08 million / 3 million = $87.36

Average portfolio value = Average investor holding x Price per share post dividend payout

Average portfolio value = 176 x $87.36 = $15,375.36 or $15.37k

Therefore average portfolio value after a re-purchase scenario is $15.37k

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

A firm has an excess cash flow of $4.8m. It had 3m shares outstanding and was...

A firm has an excess cash flow of $4.8m. It had 3m shares outstanding and was considering paying a cash dividend, corresponding to a 40% payout. The stock traded in the market at $88.00 per share. Assume that the average investor holds 156 shares of the company’s stock. Note: The term “k” is used to represent thousands (× $1,000). Required: What would be the average portfolio value after a re-purchase scenario? $Answerk Do not round intermediate calculations. Input your answer...

firm has an excess cash flow of $4.8m. It had 3m shares outstanding and was considering...

firm has an excess cash flow of $4.8m. It had 3m shares outstanding and was considering paying a cash dividend, corresponding to a 40% payout. The stock traded in the market at $88.00 per share. Assume that the average investor holds 155 shares of the company’s stock. Note: The term “k” is used to represent thousands (× $1,000). Required: What would be the average portfolio value after a re-purchase scenario?

Harris Shipping Company has excess cash of $300,000 and 200,000 total shares outstanding. The firm pays...

Harris Shipping Company has excess cash of $300,000 and 200,000 total shares outstanding. The firm pays no dividends and its net income for the year just ended is $100,000. The market value balance sheet at the end of the year is shown below. Assume that the entire amount of excess cash will be utilized for share repurchase at the current market price. Calculate the price-earnings ratio after the repurchase. Market Value Balance Sheet (before paying out excess cash) Excess Cash...

Firm A has 1000 shares of stock It has a Flat perpetual cash flow of $800...

Firm A has 1000 shares of stock It has a Flat perpetual cash flow of $800 equal to annual EBIT As an unlevered firm it has no debt and an unlevered beta of .8 Rf = 5% and market risk premium = 5% Assume a 25% tax rate a) What is the firm’s unlevered stock currently worth per share b) The manager has vowed to never issue equity. But now, he is convinced to do the following. Assume the firm...

Harris Corporation is an all-equity firm with 100 million shares outstanding. Harris has $250 million in cash...

Harris Corporation is an all-equity firm with 100 million shares outstanding. Harris has $250 million in cash and expects future free cash flows of $85 million per year. Management plans to use the cash to expand the firm’s operations, which will in turn increase future free cash flows by 15%. If the cost of capital of Harris’ investments is 12%, how would a decision to use the cash for a share repurchase rather than the expansion change the share price?

River Enterprises has $500 million in debt and 1818 million shares of equity outstanding. Its excess...

River Enterprises has $500 million in debt and 1818 million shares of equity outstanding. Its excess cash reserves are $16 million. They are expected to generate $206 million in free cash flows next year with a growth rate of 22% per year in perpetuity. River Enterprises' cost of equity capital is 12%. After analyzing the company, you believe that the growth rate should be 33% instead of 22%. How much higher (in dollars) would the price per share be if...

(a) Kim Corp. has $50 million in excess cash and no debt. The firm expects to...

(a) Kim Corp. has $50 million in excess cash and no debt. The firm expects to generate additional free cash flows of $40 million per year in subsequent years and will pay out these future free cash flows as regular dividends. Kim Corp.’s cost of capital is 10% and there are 10 million shares outstanding. Kim Corp.'s board decided to use the entire $50 million to repurchase shares. Assume that you own 2,500 shares of Kim Corp. stock and that...

Corporation A has $50 million in excess cash and no debt. The firm expects to generate...

Corporation A has $50 million in excess cash and no debt. The firm expects to generate additional free cash flows of $40 million per year in subsequent years and will pay out these future free cash flows as regular dividends. Corporation A's cost of capital is 10% and there are 10 million shares outstanding. Corporation A's board decided to use the entire $50 million to repurchase shares. Assume that you own 2,500 shares of Corporation A stock and that Corporation A uses...

ABC Inc. has 10 million shares of common stock outstanding. The firm also has 1,200,000 shares...

ABC Inc. has 10 million shares of common stock outstanding. The firm also has 1,200,000 shares of 6 percent preferred stock (annual dividend=$6) and 300,000 semi-annual bonds of $1,000 face value with a coupon rate of 8 percent semiannual bonds outstanding. The bonds were issued five years ago with maturity of 30 years when they were issued. The market price of common stock is $46 per share and has a beta of 0.85, the preferred stock currently sells for $90...

AHN is firm manufacturer. The firm is all-equity financed and has 40 million shares outstanding at...

AHN is firm manufacturer. The firm is all-equity financed and has 40 million shares outstanding at a price of $75 per share. AHN current cost of capital is 7.5%. The firm is considering to buy back $400 million in shares in the open market and to finance the repurchase by issuing bonds. AHN plans to maintain this capital structure indefinitely. At this level of debt, the bonds would be A-rated, and the firm would pay an interest rate of 4.5%.AHN's...

Subjects