Question

Biblio... Saved Williams Company is a manufacturer of auto parts having the following financial statements for 2018-2019 Balance Sheet December 31 2819 2018 Cash $ 270,000 145,000 160,866 395,000 Accounts receivable 235,008 185,006 Inventory Total current assets $ 825,000 565,000 1,748,901,600,e89 $2,565,0e0 $2,165,0e0 Long-lived assets Total assets Current liabilities 275,000 900,000 990,00 320,000 900,000 1,345,009 Long-term debt Shareholders' equity $2,565,000 $2,165,000 Total debt and equity Income Statement For the years ended December 31 2019 2018 $3,600,000 $3,700,000 2,700,000 2,800,000 900,000 510,0008481906 560,000 Sales Cost of sales Gross margin Operating expenses" Operating income Taxes 9ee,000 390,000 1361500 196000 $ 253,500 s364,000 Net income Cash Flow from Operations Net income 2019 $ 253,588364,088 110,000 (135,000) 45,000 2018 Plus depreciation expense + Decrease (-increase) in accounts receivable and inventory + Increase (-decrease) in current liabilities 100,800 Cash flow from operations 273,500464,000 "Operating expenses include depreciation expense. Additional financial information, including industry averages for 2019, where ap propriate, includes: Industry 2019 2018 2019 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 $95,00e 20,0e0 35% $ 110,0ee s 100,000 $ 40,000$40,e00 3.25 1,900,0001,900,e00 35% 35,0% 4 25.00 1.50 18.00 5%9.00 11.10 10.50 2.30 1.90 1.20 5% Saved Help Save Quick ratio Cash flow from operations ratio Free cash flow ratio 1.99 1.20 Gross margin percentage Return on assets (net book value) Return on equity 1.10 30,0% 29, 0% 30,0% Required: Develop a business valuation for Williams Company for 2019 using the following methods: (1) book value of equity, (2) market value of equity, (3) discounted cash flow (DCF), (4) enterprise value, and (5) all the multiples-based valuations for which there is an industry average multiplier. For the calculation of the DCF valuation you may use the simplifying assumption that free cash flows will continue indefinitely at the amount in 2019 Book value of equity Market value of equity Discounted free cash flows Enterprise value Multiples-based valuation Earnings multiple Free cash flow multiple Sales multiple

Answer 1

Book value of equity 1. -Total Assets - Liabilities (Long term liabilities + current liabilities) -$2565000 9000000 3200000 $9635000 Market value of equity 2. -No of shares outstanding $1900000 * 3.25 Market price per share $6175000 3. Discounted free cash flow -Free cash flow from operation/Cost of capital 273500 / 5% -$13675 4. Enterprise value -Marketvalue of common stock+ market value of debt- cash -$(1900000*3.25)+9000000 270000 -14905000

Industry multiplier Valuation particulars Amount Earning Multiple Free cash flow multiple 253500 2281500 273500 18 4923000 3600000 1.5 5400000

Book value of equity Market value of equity $9,635,000 $6,175,000 Discounted free cash flows $13,675 $14,905,000 Enterprise value Earnings multiple $2,281,500 Free cash flow multiple Sales multiple $4,923,000 $5,400,000