Question

New Stock Issue Bynum and Crumpton, a small jewelry manufacturer, has been successful and has enjoyed a positive growth trend. Now B&C is planning to go public with an issue of common stock, and it faces the problem of setting an appropriate price for the stock. The company and its investment banks believe that the proper procedure is to conduct a valuation and select several similar firms with publicly traded common stock and to make relevant comparisons. Several jewelry manufacturers are reasonably similar to B&C with respect to product mix, asset composition, and debt/equity proportions. Of these companies, Abercrombe Jewelers and Gunter Fashions are most similar. When analyzing the following data, assume that the most recent year has been reasonably "normal" in the sense that it was neither especially good nor especially bad in terms of sales, earnings, and free cash flows. Abercrombe is listed on the AMEX and Gunter on the NYSE, while B&C will be traded in the NASDAQ market. Company data Abercrombe Gunter B&C Shares outstanding 5 million 11 million 500,000 Price per share $32.00 $49.00 NA Earnings per share $2.20 $3.13 $2.60 Free cash flow per share $1.63 $2.54 $1.90 Book value per share $14.00 $23.00 $19.00 Total assets $105 million $303 million $11.5 million Total debt $35 million $50 million $2 million Calculate debt to total assets, P/E, market to book, P/FCF, and ROE for Abercrombe, Gunter, and B&C. For calculations that require a price for B&C, use the per share price you obtained with the corporate valuation model in Part a. Do not round intermediate calculations. Round your answers to two decimal places Abercrombe Gunter B&C D/A % % % P/E Market/Book ROE % % % P/FCF

Answer 1

I have used the per share price from solution to the earlier part. Please see the green colored cell in the table below. Your answers to this part are all there in the yellow colored cells. The linkage column will help you understand the mathematics.

Company data	Linkage	Abercrombe	Gunter	B&C
Shares outstanding	N	5,000,000	11,000,000	500,000
Price per share	P	32.00	49.00	40.03
Earnings per share	E	2.20	3.13	2.60
Free cash flow per share	FCF	1.63	2.54	1.90
Book value per share	B	14.00	23.00	19.00
Total assets	A	105,000,000	303,000,000	11,500,000
Total debt	D	35,000,000	50,000,000	2,000,000
D/A	D / A	33.33%	16.50%	17.39%
P/E	P / E	14.55	15.65	15.40
Market/Book	P / B	2.29	2.13	2.11
ROE	E / B	15.71%	13.61%	13.68%
P/FCF	P / FCF	19.63	19.29	21.07