Problem 1412 Stock Repurchase Bayani Bakerys most recent FCF

Problem 14-12
Stock Repurchase

Bayani Bakery\'s most recent FCF was $46 million; the FCF is expected to grow at a constant rate of 6%. The firm\'s WACC is 13%, 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 $364 million in debt and $64 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

Solution

1) Value of thr firm\'s operation = FCF x (1 + Growth Rate)/(WACC -Growth Rate) Value of the firm\'s operation = $46 M x (1+ 6%) /(13% - 6%) $696.57 Millions 2) Intrinsic Value of Equity immediately prior to stock repurchase Intrinsic Value = Value of Operation + value of non operating assets - Debt - Preferred stock Intrinsic Value = ($696.57 + $30 - $364 -$64) Millions $298.57 Millions 3) Immediately prior to the repurchase, the intrinsic stock price Intrinsic Stock Price = Intrinsic value of equity / number of shares outstanding Intrinsic Stock Price = $298.57 Millions/15 Millions Shares $19.9 4) Shares Repurchased price = $30,000,000/$19.9 1.51 Million shares 5) Intrinsic Value of Equity immediately after to stock repurchase Intrinsic Value = Value of Operation + value of non operating assets - Debt - Preferred stock Intrinsic Value = ($696.57 - $364 -$64) Millions $269 Millions 6) Immediately after the repurchase, the intrinsic stock price Intrinsic Stock Price = Intrinsic value of equity / number of shares outstanding Intrinsic Stock Price = $269 Millions/15 - 1.51 Millions Shares $19.9