Finance F515

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13-10 Corporate Valuation 551-552

The financial statements of Lioi Steel Fabricators are shown below—both the actual results for 2010 and the projections for 2011. Free cash flow is expected to grow at a 6% rate after 2011. The weighted average cost of capital is 11%. A.If operating capital as of 12/31/2010 is $502.2 million, what is the free cash flow for 12/31/2011? B.What is the horizon value as of 12/31/2011?

C.What is the value of operations as of 12/31/2010?
D.What is the total value of the company as of 12/31/2010?
E.What is the intrinsic price per share for 12/41/2010?
Income Statements for the Year Ending December 31 (Millions of Dollars Except for Per Share Data.) ActualProjected
2010 2011

Net Sales$500.0$530.0
Costs (except depreciation) 360.0 381.6
Depreciation 37.5 39.8
Total operating costs$397.5$421.4
Earnings before interest and taxes$102.5$108.6
Less interest 13.9 16.0
Earnings before taxes$ 88.6$ 92.6
Taxes (40%) 35.4 37.0
Net Income before preferred dividends$ 53.2$ 55.6
Preferred dividends 6.0 7.4
Net income available for common dividends$ 47.2$ 48.2
Common dividends$ 40.8$ 29.7

Additional to retained earnings$ 6.4$ 18.5
Number of shares 10 10
Dividends per share$ 4.08$ 2.97


Balance Sheets for December 31 (Millions of Dollars)

ActualProjected
2010 2011
Assets
Cash$ 5.3$ 5.6
Marketable securities 49.9 51.9
Accounts receivable 53.0 56.2
Inventories 106.0 112.4
Total current assets$ 214.2$ 226.1
Net plant and equipment 375.0 397.5
Total assets$ 589.2$ 623.6

Liabilities and Equity
Accounts payable$ 9.6$ 11.2
Notes payable 69.9 74.1
Accruals 27.5 28.1
Total current liabilities$ 107.0$ 133.4
Long-term bonds 140.8 148.2
Preferred stock 35.0 37.1
Common...
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