1. Given the following information Burnaby Mountain Trading Company Income State
ID: 2802242 • Letter: 1
Question
1. Given the following information Burnaby Mountain Trading Company Income Statement (2008) Sales Cost of goods sold Gross Profit Selling and administrative expenses Operating profit Interest expense Income before tax Tax expense Net income $7.000,000 5,000.000 2,000,000 1.700,000 300,000 50 250,000 150,000 Balance Sheet 2008 2007 Cash Accounts receivable Inventory Total Current assets Fixed assets Total assets s 90,000 80,000 810.000 800,000 800,000720,000 1.700,000 1,600,000 2.600,000 2.400,000 4,300.000 4,000,000 500,000 400,000 100.000 100.000 Accounts payable Bank loarn Total current liabilities Bonds payable Total liabilities Common stock (20,000 shares) Retained earnings Total liabilities and shareholders' eq. 500,000 400,000 300,000 1,000,000 800,000 600,000 500,000 500,000 2.800,000 2.700,000 4,300,000 4,000,000 For the income statement, operating profit is EBIT. For the balance sheet, treat bank loans as short term loans and bonds payable as long term loans. The market value of debt is equal to the sum of bank loans and bonds payable.Explanation / Answer
WACC= 6%*(1-0.4)*0.5 + 13%*0.5= 8.3%
Cost of equity = 1%+ (8 *1.5)= 13%
FCFE= NI + depreciation tax shield - working capital changes- repayment of debt- fixed capital investment
FCFE= 150000+ (30000*0.4)- 80000= 82000$
Valuation using constant growth approach =
82000*(1.02)/0.13- 0.02= 760363.3$
For each equity share it would be =760463.3/20000= 38. 10$ per share.
2. Two stage growth model
FCFE 2011. 120441.60$
Terminal value = 120441.60/0.13- 0.02= 1094923$
Value of Firm = 98400/(1.13) +{ 118080+1094923}/(1.13)^2
=87079.6+949959.78 = 1037039.43$
Value of equity share= 1037039.43/20000= 51.86$
FCFE For 2008 82000$ For 2009 I.e growth = 20% 98400$ For 2010 118080$Related Questions
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