MarineCo manufactures, markets, and distributes recreational motor boats. Using

Question

MarineCo manufactures, markets, and distributes recreational motor boats. Using discounted free cash flow, you value the company’s operations at $2,500 million. The company has a 20 percent stake in a nonconsolidated subsidiary. The subsidiary is valued at $500 million. The investment is recorded on MarineCo’s balance sheet as an equity investment of $50 million. MarineCo is looking to increase its ownership. The company’s marginal tax rate is 30 percent. Based on this information, what is MarineCo’s enterprise value? If new management announced its plan to sell the company’s stake in the subsidiary at its current value, how would that change your valuation?

Explanation / Answer

Solution: MarineCo: Income Statement and Balance Sheet $in millions Income Statement Balance Sheet Sales of machinery $1,500 Operating assets $2,200 Revenues of financial products $400 Financial receivables $4,000 Total revenues $1,900 Total assets $6,200 Cost of goods sold ($1,000) Interest expense of financial products ($350) Operating liabilities $400 Total Operating Costs ($1,350) General obligation debt 0 Debt related to financial products $3,600 Operating profit $550 Stockholder's equity $2,200 Interest expense, general obligation ($80) Total liabilities and equity $6,200 Net Income $470

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