5. Dividends, repurchases, and firm value Remember that the primary goal of a firm is to maximize shareholder wealth by increasing the firm's intrinsic value. It is thus important to understa the impact of distributions--both in the form of dividends or stock repurchases-on the firm's value. Consider the following situation: Tanya is a financial analyst in Demo You Inc. 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 $132 milion in its most recent fiscal year. The firm's cost of capital (WACC) is 15%. The firm has been growing at 6% for the past six years but is expected to grow at a constant rate of 5% in the future, . The firm has 33.00 million shares outstanding, . The company has $352 million in debt and $220 million in preferred stock. Along with the rest of the finance team, Tanya has been part of board meetings and knows that the company is planning to distribute $75 million, which is invested in short-term investments, to its shareholders by buying back stock from its shareholders. Tanya ako observed that, at this point, apart from the $75 million in short-term investments, the firm has no other nonoperating assets. Using results from Tanya's calculations and observations, solve for the values in the following tables. Select the best answer provided in the selection 5: Assignment - Distributions to Shareholders: Dividends and Repurchases The company has $352 million in debt and $220 million in preferred stock. Along with the rest of the finance team, Tanya has been part of board meetings and knows that the company is planning to distribute $75 million, which is invested in short-term investments, to its shareholders by buying back stock from its shareholders. Tanya also observed that, at this point, apart from the $75 million in short-term investments, the firm has no other nonoperating assets. Using results from Tanya's calculations and observations, solve for the values in the following tables. Select the best answer provided in the selection list. Value per share $1,320.00 million 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 $1,386.00 million $79.20 million $7,920.00 million Based on your understanding of stock repurchases, identify whether the following statement is true or false; tt a firm pays a dividend of $0.59 per share the firm's stock price will also fail by $0.59 per share This statement is true because if a firm pays a dividend of 50.59 per share the price per share of the Army stock will also fall by 10.59 to void any arbitrage opportunities
