. Pimax Oil is an all equity firm. The number of shares currently outstanding is 100...
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. Pimax Oil is an all equity firm. The number of shares currently outstanding is 100 million. The firm has $150 million cash in the balance sheet. This is free cash (Cash for working capital is kept separate). It expects future free cash flows of $65 million per year. The board has received two proposals from the management. Proposal 1: Expansion: Management wants to use the cash to expand the firms operations. This will increase the future free cash flows to $72.8 million per year. Proposal 2: Share repurchase: Considering the demand from shareholders the board may consider a share repurchase using the existing free cash. The cost of capital of Pimax's investments is 10%. 1. What is the share price of the firm if Pimax continues with the Proposal 1, expansion project? 2. If the board decides in the favour of proposal 2, i.e in favour of share repurchase, how would it change the share price. 3. Explain the differences (if any) on the impact of the two proposals on the share price. 4. Discuss consequences of accepting the share repurchase for the firm and long term shareholders? Suggest any alternatives. . Pimax Oil is an all equity firm. The number of shares currently outstanding is 100 million. The firm has $150 million cash in the balance sheet. This is free cash (Cash for working capital is kept separate). It expects future free cash flows of $65 million per year. The board has received two proposals from the management. Proposal 1: Expansion: Management wants to use the cash to expand the firms operations. This will increase the future free cash flows to $72.8 million per year. Proposal 2: Share repurchase: Considering the demand from shareholders the board may consider a share repurchase using the existing free cash. The cost of capital of Pimax's investments is 10%. 1. What is the share price of the firm if Pimax continues with the Proposal 1, expansion project? 2. If the board decides in the favour of proposal 2, i.e in favour of share repurchase, how would it change the share price. 3. Explain the differences (if any) on the impact of the two proposals on the share price. 4. Discuss consequences of accepting the share repurchase for the firm and long term shareholders? Suggest any alternatives.
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1 To determine the share price under Proposal 1 you would need to calculate the present value of the ... View the full answer
Related Book For
Fundamentals Of Corporate Finance
ISBN: 9780135811603
5th Edition
Authors: Jonathan Berk, Peter DeMarzo, Jarrad Harford
Posted Date:
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