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Use the following information to answer questions 1-7 Consider the following abbreviated financial statements for Boathead...
Use the following information to answer questions 1-7 Consider the following abbreviated financial statements for Boathead Enterprises: BOATHEAD ENTERPRISES 2014 and 2015 Partial Balance Sheets Assets Liabilities and Owners’ Equity 2014 2015 2014 2015 Current assets $ 946 $ 1,008 Current liabilities $ 385 $ 404 Net fixed assets 3,907 4,600 Long-term debt 2,029 2,197 Equity 2,439 3,007 BOATHEAD ENTERPRISES 2015 Select Income Statement Info Sales $ 12,340 Costs 5,920 Depreciation 1,050 Interest paid 190 The tax rate is 35%. Long term debt trades at par. The firm has 1,000 shares outstanding. Free Cash Flow to the Firm will grow at 2% and the Free Cash Flow to Equity will grow at 7% forever. The weighted average cost of capital is 12%. The cost of equity is 20%. Construct the income statement. Then answer the following 7 questions. 1. What is the change in net working capital for 2015? $______ 2. What is the change in gross fixed assets, i.e. capital expenditures, for 2015? $______ 3. What is the Free Cash Flow to the Firm for 2015? $______ 4. What is the Value of the Firm (Assets)? $______ Robert Dubil Homework #9 FINAN 5000-090 2 5. What is the stock price per share using the discounted FCFF valuation? $______ 6. What is the Free Cash Flow to Equity for 2015? $______ 7. What is the stock price per share using the discounted FCFE valuation? $______
Solutions
Expert Solution
| Income Statement | |
| 2015 | |
| Sales | 12340 |
| Less:Costs | 5920 |
| Gross profit | 6420 |
| Less: Operating expenses: | |
| Depreciation | 1050 |
| EBIT | 5370 |
| Interest paid | 190 |
| EBT | 5180 |
| Tax at 35% | 1813 |
| Net Income/EAT | 3367 |
| 1.Change in net working capital for 2015=(NWC 2015-NWC2014) |
| ie.(Current assets-Current Liabilities 2015)-(Current assets-Current Liabilities 2014) |
| ie.(1008-404)-(946-385)= |
| 43 |
| 2.Change in gross fixed assets, i.e. capital expenditures, for 2015 |
| Fixed assets 2015-Fixed assets 2014+Depreciation 2015 |
| ie.4600-3907+1050= |
| 1743 |
| 3.Free Cash Flow to the Firm for 2015 |
| EBIT*(1-Tax rate)+Depn.-CAPEX-Changes to working capital |
| ie.(5370*(1-35%))+1050-1743-43= |
| 2754.5 |
| 4. Value of the Firm (Assets) |
| (FCFF*(1+g))/(WACC-g)=(2754.5*(1+2%))/(12%-2%)= |
| 28096 |
| 5.Stock price per share using the discounted FCFF valuation |
| (Value of Firm-Long-term Debt)/No.of equity shares |
| (28096-2197)/1000= |
| 25.90 |
| 6.Free Cash Flow to Equity for 2015 |
| FCFE = Cash from Operating Activities – Capital Expenditures + Net Debt Issued /Retired |
| ie. (Net Income+Depn.-Changes to W/c)-CAPEX+/- Change in debt |
| ie.(3367+1050-43)-1743+(2197-2029)= |
| 2799 |
| 7.Stock price per share using the discounted FCFE valuation |
| Value of equity = (FCFE*(1+g))/(ke-g)=(2799*(1+7%))/(20%-7%)= |
| 23038 |
| Stock price/share=23038/1000= |
| 23.04 |
| FCFE = FCFF-(Interest*(1-tax rate))+ Net Debt |
| 2754.5-(190*(1-35%))+(2197-2029)= |
| 2799 |
jeff jeffy answered 2 years agoRelated Solutions
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2014 and 2015 Partial Balance Sheets
Assets
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2014
2015
2014 2015
Current assets
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$ 1,008
Current liabilities
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$ 404
Net fixed assets
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Costs
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Depreciation
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Interest paid
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