Please show formulas and workings for part b please: Use the following informati

Question

Please show formulas and workings for part b please:

Use the following information concerning Johnson Machine Tools Ltd in Part a & b. Johnson’s income statement from the fiscal year that ended this past December is:

Revenue $995

Cost of sales 652

Gross profit $343

Selling, general, & administrative expenses 135

Operating profit (EBIT) $208

Interest expense 48

Earnings before tax $160

Tax 64

Profit $ 96

All dollar values are in millions. Depreciation and amortisation expenses last year were $42 million, and the company has $533 million of debt outstanding.

You are an analyst at a company that buys private companies, improves their operating performance, and sells them for a profit. Your boss has asked you to estimate the fair market value of the Johnson Machine Tools Ltd.

Billy's Tools is a public company with business operations that are virtually identical to those at Johnson.

The most recent income statement for Billy’s Tools is as follows:

Revenue $1,764

Cost of sales 1,168

Gross profit $ 596

Selling, general, & administrative expenses 211

Operating profit (EBIT) $ 385

Interest expense 12

Earnings before tax $ 373

Tax 147

Profit $ 226

All dollar values are in millions.

Billy’s had depreciation and amortisation expenses of $71 million last year and 200 million shares and $600 million of debt outstanding as of the end of the year. Its share is currently trading at $12.25 per share.

Required Part (a) Using the P/E multiple, what is the value of Johnson’s shares? What is the total value of Johnson Machine Tools Ltd?

PART B

Using the enterprise (company) value/EBITDA multiple, what is the total value of Johnson Machine Tools Ltd? What is the value of Johnson’s shares?

Explanation / Answer

The enterprise value/EBITDA multiple for Johnson is Enterprise Value/EBITDA ((12.25*200)+(600))/(385+71) 6.6885965 Therefore, the total value is 6.69*(208+42) $1,672.50 million And therefore the value of stock is Value of Equity - Value of Enterprise - Value of debt $1672.50-533 $1,139.50 million

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