Rihana is a financial analyst in Bidget Corp. As part of her analysis of the annual distribution policy and its impact on the firm's value, she makes the following calculations and observations:
The company generated a free cash flow (FCF) of $105 million in its most recent fiscal year.
The firm's cost of capital (WACC) is 14%. The firm has been growing at 7% for the past six years but is expected to grow at a constant rate of 6% in the future.
The firm has 26.25 million shares outstanding.
The company has $280 million in debt and $175 million in preferred stock.
Along with the rest of the finance team, Rihana has been part of board meetings and knows that the company is planning to distribute $90 million, which is invested in short-term investments, to its shareholders by buying back stock from its shareholders. Rihana also observed that, at this point, apart from the $90 million in short-term investments, the firm has no other nonoperating assets.
Using results from Rihana's calculations and observations, solve for the values in the following tables:
Value of the firm's operations:
Intrinsic value of equity immediately prior to stock repurchase:
Intrinsic stock price immediately prior to the stock repurchase:
Number of shares repurchased:
Intrinsic value of equity immediately after the stock repurchase:
Intrinsic stock price immediately after the stock repurchase: