Question

Aayan Bakery's mov: recent FCF was 548 miliong the FCF is expected to grow ot a constant pate of 6%. The frmb' WacC is 11 W, and 2 has 15 milion shares of common stock outstanging. The firm has \$30 malion in short-term ifvestments, which it plans to lquldate and butribute to commen shareholders via a stock repurchase; the firm has no other nonoperatiog assets. IR has s361 mulion in debt and 556 millon in serefered stock.

a. What is the value of eperations? Enter your answer in mitions. For exanple, an answer of $1:23 millon should be entered as 1:23, not 1,230,000. Round your answer to twe decimal places. 3 millon.
b. tmmedigtey enor to the repurchase, what is the intrinsic value of equity? Enter vour answer in milions. for evamole, an answer of 31.23 million should be entered as 1.23 , not 1,230,000 Round wour antwer to two decimal places. 3 milion

Answer 1

The value of operations for Aayan Bakery can be calculated using the formula: Value of Operations = FCF / (WACC - growth rate). The intrinsic value of equity immediately after the stock repurchase can be calculated using the formula: Intrinsic Value of Equity = (Value of Operations - Short-term Investments) / Number of Shares.

Step-by-step explanation:

The value of operations can be calculated by finding the present value of the expected future cash flows (FCFs). In this case, the FCF is expected to grow at a constant rate of 6%. The weighted average cost of capital (WACC) is given as 11% and the number of shares of common stock outstanding is 15 million. The short-term investments of $30 million will be distributed to common shareholders via a stock repurchase. To calculate the value of operations, we can use the formula:

Value of Operations = FCF / (WACC - growth rate)

Using the given values, the value of operations is:

Value of Operations = 548 million / (0.11 - 0.06) = 10960 million

Therefore, the value of operations is 10960 million.

To calculate the intrinsic value of equity immediately after the stock repurchase, we need to subtract the short-term investments from the value of operations and divide it by the number of shares. The formula is:

Intrinsic Value of Equity = (Value of Operations - Short-term Investments) / Number of Shares

Using the given values, the intrinsic value of equity is:

Intrinsic Value of Equity = (10960 million - 30 million) / 15 million = 724.67 million

Therefore, the intrinsic value of equity is 724.67 million.