Question

In: Finance

Orange Juice Technologies (OJ-Tech) earned $81.2 million in net income on $644 million in sales in...

Orange Juice Technologies (OJ-Tech) earned $81.2 million in net income on $644 million in sales in the year that ended 12/31/2017. From the income statement you see that the operating profit in 2017 was $138.0 million. From the cash flow statement, capital expenditures were $62 million, depreciation expense was $74 million, and net working capital increased by $6 million in 2017.

OJ-Tech estimates their corporate WACC as 6.5%, and their average tax rate is 25%. Sales, income and free cash flow are expected to grow at a rate of 2% in 2018 and will continue to grow at that rate forever.

Book value of all debt is equal to $448 million, and the book value of equity is $927 million. There are currently 124.2 million common shares outstanding. The cash balance is $151 million.

a) Compute Free Cash Flow for 2017

b) Estimate the Enterprise Value of OJT as of 12/31/2017.

c) Compute the value of one share of common stock on 12/31/2017

d) Compute the price-to-book value ratio for OJT on 12/31/2017.

Solutions

Expert Solution

a) Company's free cash flow for the year 2017:

Free cash flow is the assessment of the amount of cash which is generated by the company after all its capital expenditures.

Free cash flow= EBIT(1-tax) + Depreciation - change in net working capital - Capital expenses.

= ($138-74)(1-0.25) +$74 - $6 - $62

= $54million

# EBIT = Operating income - depreciation

b) Enterprise Value of OJT as of 12/31/2017

Free cash flow in next year = $54 + 2% = $55.08million

hence,

= $1224.million

c) Value of one share of common stock:

Value of equity = enterprise value - total debt valu

hence, value of equity = $1224 - $448 =$776million

number of outstanding shares = 124.2 million

hence value of one share = value of equity / outstanding shares

= $776/124.2

=$6.25 per share

d) price to book value ratio:

=0.84 times

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

KO Co. has the sales of $37,266 million, net income of $8,920 million, and the book...

KO Co. has the sales of $37,266 million, net income of $8,920 million, and the book equity of $18,981 million. It has 4,300 million shares outstanding. The industry average P/E ratio is 23.82, Price/Book ratio is 4.72, and Price/Sales ratio is 3.42. What is the expected price of KO Stock using the P/E ratio? $49.41 $50.85 $20.83 $29.64

The 2021 income statement of Anderson Medical Supply Company reported net sales of $8 million

The 2021 income statement of Anderson Medical Supply Company reported net sales of $8 million, cost of goods sold of $4.8 million, and net income of $800,000. The following table shows the company’s comparative balance sheets for 2021 and 2020: Some industry averages for Anderson’s line of business are Inventory turnover ........................5 timesAverage collection period ............25 daysAsset turnover ..............................1.8 times Required:1. Determine the following ratios for 2021:a. Inventory turnoverb. Receivables turnoverc. Average collection periodd. Asset turnover2. Assess Anderson’s asset...

Times-Interest-Earned Ratio EVANS and Sons, Inc. Income Statement (in millions) 2019 2018 Net sales $9,800 $9,300...

Times-Interest-Earned Ratio EVANS and Sons, Inc. Income Statement (in millions) 2019 2018 Net sales $9,800 $9,300 Cost of goods sold (5,500) (5,200) Gross profit 4,300 4,100 Selling and administrative expenses (2,800) (2,700) Income from operations 1,500 1,400 Interest expense (300) (250) Income before income taxes 1,200 1,150 Income tax expense (220) (200) Net income $980 $950 EVANS and Sons, Inc. Balance Sheet (in millions) 2019 2018 Assets Current assets Cash and cash equivalents $100 $300 Accounts receivable 900 800 Inventory...

A company with net income of $30 million and shareholder equity of $200 million and a...

A company with net income of $30 million and shareholder equity of $200 million and a 40% payout ratio would expect a sustainable constant-growth rate of: A) 4%. B) 9%. C) 21%. D) 25%.

Complete the multi product contribution margin income statement with the given information: Net income earned during...

Complete the multi product contribution margin income statement with the given information: Net income earned during most recent period: $ 65,000 Contribution margin ratio: 15% Fixed costs incurred during most recent period: $ 175,000 Statutory tax rate: 37% Operating income generated at breakeven: $ - Applicable to the Football Division Selling price per football $ 18.00 Total variable cost dollars incurred by Football Division $ 952,088 Quantity of footballs sold during most recent period: 64,000 Applicable to the Baseball...

1. During 2017, the partnership of Kiki and Tammy earned net income of $ 125,000. Kiki’s...

1. During 2017, the partnership of Kiki and Tammy earned net income of $ 125,000. Kiki’s beginning capital was $ 60,000 and she withdrew $15,000 during the year. Tammy’s beginning capital $ 70,000 and she had drawings of $22,000 for the year. Instructions: (a) Assume the partnership income- sharing agreement calls for income to be divided with a salary of $ 30,000 to Kiki and $ 25,000 to Tammy, interest of 10% on beginning capital, and the remainder divided 60%...

Strickland Corporation earned net income of $300,000 (after taxes at a rate of 40%) in 2017....

Strickland Corporation earned net income of $300,000 (after taxes at a rate of 40%) in 2017. It had 100,000 shares of common stock outstanding all year, and 50,000 shares of preferred stock, non-convertible, non-cumulative. Dividends of $20,000 were declared and paid on the preferred. The company also had $400,000 of 10% convertible bonds (sold at par value) convertible into 16,000 shares of common stock. The company had outstanding stock options for 5,000 shares of common stock at an exercise price...

Crystal Corporation earned net income of $750,000 in 2016. It has a complex capital structure as...

Crystal Corporation earned net income of $750,000 in 2016. It has a complex capital structure as follows: 10,000 shares outstanding of 10%, $100 preferred stock, and 150,000 shares issued of $5 common stock. There is also 20,000 common stock in the treasury. The preferred stock can be converted into 25,000 shares of common. In addition Crystal has Bonds Payable of $250,000 that pay interest of 8% and can be converted into 10,000 shares of common stock. The applicable federal income...

During the year, Hepworth Company earned a net income of $59,225. Beginning and ending balances for...

During the year, Hepworth Company earned a net income of $59,225. Beginning and ending balances for the year for selected accounts are as follows: Account Beginning Ending Cash $108,000 $125,600 Accounts receivable 66,600 99,150 Inventory 36,800 52,500 Prepaid expenses 27,200 29,400 Accumulated depreciation 81,900 92,500 Accounts payable 45,300 54,425 Wages payable 26,000 15,100 There were no financing or investing activities for the year. The above balances reflect all of the adjustments needed to adjust net income to operating cash flows....

Why does times-interest-earned use operating income, but the return on equity uses net income instead of...

Why does times-interest-earned use operating income, but the return on equity uses net income instead of operating income?

Subjects