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aliina
1 month ago
14

6. Harris Corporation is an all-equity firm with 100 million shares outstanding. Harris has $250 million in cash and expects fut

ure free cash flows of $85 million per year. Management plans to use the cash to expand the firm’s operations, which will in turn increase future free cash flows by 15%. If the cost of capital of Harris’ investments is 12%, how would a decision to use the cash for a share repurchase rather than the expansion change the share price?
Business
1 answer:
harina [3.8K]1 month ago
3 0

Answer:Utilizing the discounted cash flow model for company valuation indicates the company is valued at $85 million / 12% = $708.33 million

Each share would approximately equate to $708.33 million / 100 million = $7.0833 per share

If the firm employs the cash for new projects, future cash flows might approximate to $97.75 million, leading to a company value of $97.75 million / 12% = $814.583 million. This signifies a 15% rise in value. Consequently, share prices are anticipated to increase by 15% to $8.1458 per share.

Should the firm opt to repurchase shares with all cash, it could buy back 35.29 million shares. As we assume that future cash flows will remain unaffected by this choice, the total company value stays at $708.33 million, with each share becoming significantly more valuable = $708.33 / 64.71 million shares = $10.95. This represents a 34.36% increase compared to the previous scenario of investing the cash.

However, it’s worth noting that this scenario may be somewhat unrealistic, as it's not typical for a company to utilize all its cash for share buybacks, as this could drastically elevate stock prices (which are influenced by supply and demand) and lead to a significant increase in the cost of capital due to increased risks.

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List at least 12 electrical notations found on the plans for this residence. refer to the plans at the back of the text.
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Answer:  
Devices & Their Corresponding Symbols 
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Name 
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 Symbol
 
 Device
 Image 
 Commentary 
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