6. Dividends, repurchases, and firm value Aa Aa 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 understand the impact of distributions-both in the form of dividends or stock repurchases-on the firm's value. Consider the following situation: Erin is a financial analyst in Blanche 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 now (FCF) of $48 miltion in its most recent fiscal year . The firm's cost of capital (WACC) is 15%. The firm has been growing at 10% for the past six years but s expected to grow at a constant rate of 8% in the future. The firm has 12.00 million shares outstanding The company has $128 million in debt and $80 million in preferred stock Along with the rest of the finance team, Erin has been part of board meetings and knows that the company is planning to distribute $120 million, which is invested in short-term investments, to its shareholders by buying back stock from its shareholders. Erin also observed that, at this point, apart from the $120 millian in short-term investments, the firm has no other nonoperating assets Using results from Erin's calcuiations selection list and observations, solve for the values in the folowing tables. Select the best answer provided in the Value 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 prior to stocke Based on your understanding of stock repurchases, identify whether the following statement is true or faise: value of operations depends on whether a firm decides to make distributions in the form of dividends or stock repurchases. depend on how the This statement is firm distributes its residual earnings because ignoring possible tax effects and signals, the value of a firm's operations 48 x 103/15%-5% F7 F8 F9 F10 F2 F3 F4 F5 &u 8 9 2 3 4 5 6