Question

Williams Company is a manufacturer of auto parts having the following financial statements for 2018-2019. Balance Sheet December 31 2019 Cash $ 264,800 Accounts receivable 154,800 Inventory 389, eee Total current assets $ 827,899 Long-lived assets 1,680, eee Total assets $2,487,eee Current liabilities 248, eee Long-term debt 990.ea3 Shareholders' equity 1,339, eee Total debt and equity $2,487,000 2018 $ 139.ee 229,000 179,800 $ 547,899 1,540,888 $2,887,899 215,800 8 40. 1,832, 800 $2,887,899 Income Statement For the years ended December 31 2019 Sales $3,540,800 Cost of sales 2,580,890 Gross margin 960,000 Operating expenses 584, eee Operating income 456, eee Taxes 159, 609 Net income 296,429 2018 $3,640,000 2,680, 890 960,809 406,809 554,00 193,980 $ 360,109 Cash Flow from Operations $ 360,100 70,000 Net income Plus depreciation expense + Decrease (-increase) in accounts receivable and inventory + Increase (-decrease) in current liabilities Cash flow from operations 2019 $ 296,400 80,000 (135, 800) 33,eee $ 274,400 "Operating expenses include depreciation expense. Additional financial information, including industry averages for 2019, where appropriate, includes: Industry 2019 35.8% 2019 $ 185,000 35% $ 80,000 $ 46,800 $ 2.55 1,840, 2018 $ 140,000 35% $ 70,000 $ 46,000 $ 1,840, 809 25.09 1.50 18.00 9.00 Capital expenditures Income tax rate Depreciation expense Dividends Year-end stock price Number of outstanding shares Sales multiplier Free cash flow multiplier Earnings multiplier Cost of capital Accounts receivable turnover Inventory turnover Current ratio Quick ratio Cash flow from operations ratio Free cash flow ratio Gross margin percentage Return on assets (net book value) Return on equity 11. le 19.50 2.30 1.90 1.29 1.10 3e. 20.8% 30.8%

Answer 1

Answer-1:

Book value of equity = Total assets - (long term liabilities + Current liabilities)

= $2,487,000 - (900,000 + 248,000)

= $1339000

Answer-2:

Market value of equity = No. of shares outstanding * Market price per share

= 1,840,000 * $2.65

= $4,876,000

Answer-3:

Free Cash Flow =Net Income+Depreciation -Capital Expenditure -Change in NWC

= Net Income + Depreciation -Capital Expenditure -(Increase in Accounts Receivable -Increase in Current Liabilities)

= $296,400 + 80,000 - 105,000 - (135,000 - 33,000)

= $169,400

Discounted Free Cash Flow =$169400*(1/1.05)

= $161,333

Answer-4:

Enterprise Value = (Market Capitalization +Total Debt -Cash)

= (1,840,000*$2.65) + (900,000 - 264,000)

= $5,512,000

Answer-5:

	Amount	Industry multiplier	Valuation
Earning multiple	$       296,400	9	$      2,667,600
Free cash flow multiple	169,400	18	3,049,200
Sales multiple	3,540,000	1.5	5,310,000