A firm’s most recent FCF was $2.4 million, and its FCF is expectedto grow at a constant rate of 5%. The firm’s WACC is 14%, and ithas 2 million shares outstanding. The firm has $12 million in shortterm investments that it plans to liquidate and then distribute ina stock repurchase; the firm has no other financial investments ordebt. Verify that the value of operations is $28 million. Immediatelyprior to the repurchase, what are the intrinsic value of equity andthe intrinsic stock price? ($40 million; $20/share) How manyshares will be repurchased? (0.6 million) How many shares willremain after the repurchase? (1.4 million) Immediately after therepurchase, what are the intrinsic value of equity and the intrinsicstock price? ($28 million; $20/share)
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