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Prokter and Gramble has $15 million in excess cash and no debt. In the following years, an additional free cash flow of $42 million per

Prokter and Gramble has $15 million in excess cash and no debt. In the following years, an additional free cash flow of $42 million per year will be generated. Prokter and Grambles unlevered cost of capital is 9%. There are 15 million shares outstanding. The companys board is meeting to decide whether to pay out its $15 million in excess cash as a special dividend or to use it to repurchase shares of the firms stock.

Assume a perfect capital market.

  1. a) Compute the enterprise value of Prokter and Gramble (without cash).

  2. b) What is Prokter and Grambles total market value including cash?

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