Given the information below about a fictional company, answer the questions that follow.
Most recent FCF $5,000,000
Expected growth rate of FCF 11% (constant)
WACC 8%
Value of nonoperating assets $1,500,000
Value of debt $9,000,000
Preferred stock $7,000,000
Shares outstanding 800,000
A If the company feels that its investments in nonoperating assets has a rate of return of 7%, what action would you recommend for the company? Why?
B What would be the company's intrinsic stock price?
C What is the intrinsic value of the company's equity?
D If the company sells its nonoperating assets at their current value, and repurchases its stock, how many shares will it purchase?
E If the company sells its nonoperating assets at their current value, and repurchases its stock, what is the new intrinsic value of the company's equity?