13-10 – $35. 0 = $503. 4

13-10 Corporate Valuation 551-552 The financial statements of Lioi Steel Fabricators are shown below—both the actual results for 2010 and the projections for 2011. Free cash flow is expected to grow at a 6% rate after 2011. The weighted average cost of capital is 11%. A. If operating capital as of 12/31/2010 is $502. 2 million, what is the free cash flow for 12/31/2011? B. What is the horizon value as of 12/31/2011? C. What is the value of operations as of 12/31/2010? D.

What is the total value of the company as of 12/31/2010?E. What is the intrinsic price per share for 12/41/2010? Income Statements for the Year Ending December 31 (Millions of Dollars Except for Per Share Data. ) ActualProjected 2010 2011 Net Sales$500. 0$530. 0 Costs (except depreciation) 360.

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0 381. 6 Depreciation 37. 5 39. 8 Total operating costs$397. 5$421. 4 Earnings before interest and taxes$102.

5$108. 6 Less interest 13. 9 16. 0 Earnings before taxes$ 88. 6$ 92. 6 Taxes (40%) 35. 4 37.

0 Net Income before preferred dividends$ 53. 2$ 55. 6Preferred dividends 6. 0 7. 4 Net income available for common dividends$ 47. 2$ 48. 2 Common dividends$ 40.

8$ 29. 7 Additional to retained earnings$ 6. 4$ 18. 5 Number of shares 10 10 Dividends per share$ 4. 08$ 2. 97 ? Balance Sheets for December 31 (Millions of Dollars) ActualProjected 2010 2011 Assets Cash$ 5. 3$ 5. 6 Marketable securities 49.

9 51. 9 Accounts receivable 53. 0 56.

2 Inventories 106. 0 112. 4 Total current assets$ 214. 2$ 226. 1Net plant and equipment 375.

0 397. 5 Total assets$ 589. 2$ 623. 6 Liabilities and Equity Accounts payable$ 9. 6$ 11.

2 Notes payable 69. 9 74. 1 Accruals 27. 5 28. 1 Total current liabilities$ 107. 0$ 133. 4 Long-term bonds 140.

8 148. 2 Preferred stock 35. 0 37. 1 Common stock (par plus PIC) 160. 0 160.

0 Retained earnings 146. 4 164. 9 Common equity$ 306. 4$ 324. 9 Total liabilities and equity$ 589.

2$ 623. a. NOPAT2011 = $108. 6(1-0. 4) = $65. 16 NOWC2011 = ($5. 6 + $56.

2 + $112. ) – ($11. 2 + $28. 1) = $134. 9 million.

Capital2011 = $134. 9 + $397. 5 = $532. 4 million. FCF2011 = NOPAT – Investment in Capital = $65.

16 – ($532. 4 – $502. 2) = $65. 16 – $30.

2 = $34. 96 million. b. HV2011 = [$34. 96(1. 06)]/(0. 11-0.

06) = $741. 152 million. c. VOp at 12/31/2010 = [$34. 96 + $741. 152]/(1+0. 11) = $699. 20 million.

d. Total corporate value = $699. 20 + $49.

9 = $749. 10 million. e. Value of equity = $749. 10 – ($69.

9 + $140. 8) – $35. 0 = $503. 4 million. Price per share = $503. 4 / 10 = $50.

34.

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