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Capital Allocation and Per-Share Value

Compare reinvestment, acquisitions, buybacks, and debt repayment on a per-share basis.

These prompts are original practice. They are not questions from a named employer or a live hiring loop.

Factory upgrade

A tooling company can spend $40m today for $12m of annual after-tax cash flow for five years. Use a 4.0 annuity factor at the hurdle rate. There is no salvage value and the company has 20m shares.

  1. 1.What present value do the receipts have?

  2. 2.What NPV does the upgrade create?

  3. 3.What value per share does it create?

  4. 4.What annual cash flow breaks even?

  5. 5.If annual cash flow is $9m, what is NPV?

  6. 6.What is the most relevant evidence about throughput?

  7. 7.How should displaced output from an older line enter?

  8. 8.What if demand is unchanged and the project only saves labor?

  9. 9.Why stress installation delays?

  10. 10.Which memo comparison helps rank projects of unequal size?

Buying back undervalued shares

A business is worth $600m to equity holders including $60m excess cash. It has 30m shares and plans to spend that cash repurchasing shares at $15. Ignore taxes and signaling.

  1. 11.What is pre-deal intrinsic value per share?

  2. 12.How many shares can it retire?

  3. 13.What equity value remains after distributing the cash?

  4. 14.What is post-deal value per remaining share?

  5. 15.At what fixed repurchase price is the transaction value-neutral per share?

  6. 16.What if shares instead cost $24 and $60m is spent?

  7. 17.What if cash was wrongly classified as excess?

  8. 18.Why compare EPS with intrinsic value?

  9. 19.What when repurchases push execution price up?

  10. 20.What if stock compensation adds 1m shares at the same time?

Acquisition premium

A buyer can purchase a target worth $180m standalone for $220m. PV of expected after-tax synergies is $55m. Integration costs have PV of $20m. Ignore financing effects initially.

  1. 21.What premium is paid above standalone value?

  2. 22.What value does the combination add after integration costs and premium?

  3. 23.What synergy PV breaks even?

  4. 24.What is the highest value-neutral offer at the original synergy estimate?

  5. 25.If integration costs rise $10m, what is deal NPV?

  6. 26.What if the target already counts shared procurement savings in its plan?

  7. 27.Which revenue synergy deserves a downside test?

  8. 28.Why model integration costs by date?

  9. 29.How does stock consideration change the per-share analysis?

  10. 30.If management calls the deal EPS-accretive, what next?

Debt repayment

A company can redeem $100m of debt at par today. Its coupon is 8%, the marginal tax rate is 25%, and deductions are usable. Excess cash otherwise earns 3% after tax. Ignore discounting for one-year comparisons.

  1. 31.What is annual pretax interest saved?

  2. 32.What is annual after-tax interest saved?

  3. 33.What annual cash income is forgone?

  4. 34.What is the net first-year benefit before other effects?

  5. 35.What if the debt cannot be redeemed until next year?

  6. 36.What if a $4m call premium applies today?

  7. 37.Which balance sheet effect matters beyond annual carry?

  8. 38.What if $100m cash is needed for seasonal inventory?

  9. 39.What when interest deductions are not usable?

  10. 40.What benchmark helps compare with an internal project?

Share issuance

A firm worth $400m has 20m shares. It issues 5m shares at $16 and invests all proceeds in an asset worth $95m at closing. Ignore issuance costs.

  1. 41.What cash does the issuance raise?

  2. 42.What is the asset's NPV relative to purchase cost?

  3. 43.What equity value follows closing?

  4. 44.What is the resulting value per share?

  5. 45.Which force offsets the positive asset NPV?

  6. 46.What asset value would make existing holders break even at $20?

  7. 47.What if the issue price rises and the same $80m is raised?

  8. 48.What should a note show about ownership?

  9. 49.Which funding alternative needs a separate stress case?

  10. 50.What if the asset earns less than forecast?

Dividend versus reserve

A firm has $70m cash, needs $45m to sustain operations, and expects a $10m cash requirement next quarter. It has 25m shares and no backup funding in stress.

  1. 51.What cash can safely leave today on these assumptions?

  2. 52.What dividend per share does that support?

  3. 53.If it pays $20m now, what stress gap arises?

  4. 54.What happens mechanically to equity value when $15m cash leaves, all else equal?

  5. 55.What is the mechanical ex-dividend price adjustment per share?

  6. 56.Why prefer a special dividend over raising the recurring payout for one-time cash?

  7. 57.What if cash sits at a restricted subsidiary?

  8. 58.What if investors face different tax treatment?

  9. 59.How should uncertain collections enter the reserve?

  10. 60.What supports a later increase in ordinary dividends?

Return on incremental capital

A distributor can deploy $80m of capital for $10m incremental annual NOPAT. Economic charge is 9% of capital. Assume the capital base and NOPAT remain fixed for this simple annual screen.

  1. 61.What is incremental return on capital?

  2. 62.What annual capital charge applies?

  3. 63.What economic profit does the project earn annually?

  4. 64.What happens if recurring NOPAT falls to $6m?

  5. 65.What NOPAT corresponds to exactly the hurdle?

  6. 66.Why prefer incremental return to the existing company's average?

  7. 67.What if the project needs extra working capital?

  8. 68.Why still build an NPV model?

  9. 69.What benchmark should compare similar projects with different risks?

  10. 70.What could falsify the margin thesis after launch?

A divestiture

A business can sell a segment with carrying value $90m for $140m. Fees and taxes total $15m. The segment's standalone operating value is $115m. The continuing business will incur $8m PV of stranded costs. Assume no other changes.

  1. 71.What cash proceeds are usable?

  2. 72.What value does the sale create before stranded costs?

  3. 73.What value is created including stranded costs?

  4. 74.What net proceeds break even after stranded costs?

  5. 75.What if fees and taxes are fixed and sale price falls $5m?

  6. 76.Why avoid using carrying value as the hurdle?

  7. 77.Which costs belong in the stranded estimate?

  8. 78.If proceeds retire debt, what additional effect belongs in a separate bridge?

  9. 79.What evidence supports removing stranded overhead?

  10. 80.What if a lower offer closes faster?

A scarce capital budget

Projects A and B require $40m each and have NPVs of $12m and $9m. Project C requires $20m and has NPV $8m. All are independent, indivisible, and comparable. The available budget is $60m.

  1. 81.Which mix maximizes NPV?

  2. 82.What total NPV does the best feasible mix create?

  3. 83.Which project has the most NPV per dollar of initial cost?

  4. 84.At a $40m budget, what maximizes NPV?

  5. 85.At an $80m budget, what feasible mix creates most value?

  6. 86.How much incremental NPV does increasing budget from $40m to $60m unlock?

  7. 87.What if A depends on B to operate?

  8. 88.Which input should stress capital availability?

  9. 89.What if C can be deferred without losing its opportunity?

  10. 90.What constraint explains rejecting even positive-NPV B at $60m?

Capital allocation recommendation

A firm has 50m shares and $100m excess cash. Its current intrinsic equity value including cash is $1bn. Independent alternatives use the full $100m. Reinvestment has NPV $25m. Buying a target at $100m has NPV $10m. A buyback can execute at $20 per share.

  1. 91.What is current intrinsic value per share?

  2. 92.What value per share follows reinvestment?

  3. 93.What value per share follows the acquisition?

  4. 94.What share count follows the buyback?

  5. 95.What intrinsic price follows the buyback?

  6. 96.Which use leads in the stated base case?

  7. 97.If reinvestment NPV falls to $5m, which alternative leads?

  8. 98.What if you doubt the reinvestment forecast most?

  9. 99.What would lower buyback price change?

  10. 100.What should management track after choosing reinvestment?

  11. 101.What evidence would warrant reallocating the next dollar?