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Bayani Bakery's most recent FCF was $49 million; the FCF is expected to grow at a constant rate of 6%
Bayani Bakery's most recent FCF was $49 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 $368 million in debt and $63 million in preferred stock.
1) What is the value of operations? Enter your answer in millions. Round your answer to two decimal places.
2) Immediately prior to the repurchase, what is the intrinsic value of equity? Enter your answer in millions. Round your answer to two decimal places.
3) Immediately prior to the repurchase, what is the intrinsic stock price? Round your answer to the nearest cent.
4) How many shares will be repurchased? Enter your answer in millions. Round your answer to two decimal places.
5) How many shares will remain after the repurchase? Enter your answer in millions. Round your answer to two decimal places.
6) Immediately after the repurchase, what is the intrinsic value of equity? Enter your answer in millions. Round your answer to two decimal places.
7) The intrinsic stock price? Round your answer to the nearest cent.
Expert Solution
1) Computation of the value of operations:-
Value of operations = FCF*(1+Growth rate)/(WACC - Growth rate)
= $49*(1+6%)/(11%-6%)
= $51.94 / 5%
= $1,038.80 million Or $1,039 million
2) Computation of the intrinsic value of equity:-
Total value of firm = Value of operations + Value of short term investments
= $1,038.80 + $30
= $1,068.80 million
Intrinsic value of equity = Total value of firm - Debt - Preferred stock
= $1,068.80 - $368 - $63
= $637.80 million Or $638 million
3) Computation of the intrinsic stock price:-
Intrinsic stock price = Intrinsic value of equity / Number of common shares outstanding
= $637.80 / 15
= $42.52 per share Or $43 per share
4) Computation of the number of shares repurchased:-
Number of shares repurchased = $30 million / $42.52
= 0.71 million
5) Computation of the number of shares will remain after repurchase:-
Number of shares are repurchase = 15 - 0.71
= 14.29 million shares Or 14 million shares
6) Computation of the intrinsic value of equity after the repurchased:-
Intrinsic value of equity = Value of operations - Debt - Preferred stock
= $1,038.80 - $368 - $63
= $607.80 million Or $608 million
7) Computation of the intrinsic stock price:-
Intrinsic stock price = Intrinsic value of equity / Number of shares are will remain after repurchase
= $607.80 / 14.29
= $42.52 per share Or $43 per share
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