7. 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: Judy 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 $81 million in its most recent fiscal year. The firm's cost of capital (WACC) is 13%. The firm has been growing at 7% for the past six years but is expected to grow at a constant rate of 6% in the future. The firm has 20.25 million shares outstanding. The company has $216 million in debt and $135 million in preferred stock. Along with the rest of the finance team, Judy has been part of board meetings and knows that the company is planning to distribute $90 million, which is invested in short-term investments, to its shareholders by buying back stock from its shareholders. Judy also observed that, at this point, apart from the $90 million in short-term investments, the firm has no other nonoperating assets. Using results from Judy's calculations and observations, solve for the values in the following tables. Select the best answer provided in the selection list. Value L 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 Based on your understanding of stock repurchases, identify whether the following statement is true or false: The stock price of a firm increases after the firm repurchases some of its shares This statement is because if the stock price changes after a firm conducts its share repurchase, then there opportunities. Thus, the price of the stock remains the same after a repurchase. arbitrage