1 Distributions as Dividends or Repurchases 2 3 Amount of distribution 4 $800 million 5 a. Filling in the missing values in the balance sheet column for July 1, 2022, which is labeled "Distribute as Dividends," 6 7 if JCI distributes its short-term securities as dividends; JCI did not have to establish an account for dividends payable prior to the distribution 8 b. Filling in the missing values in the balance sheet column for July 1, 2022, which is labeled "Distribute as Repurchase," if JCI distributes its short-term securities through stock repurchases 9 10 11 Projecting JCI's Financial Statements 12 (Millions of Dollars) 13 14 Income Statements 15 Netsales 16 Costs (exceptdepreciation) 17 Depreciation 18 EBIT 19 Interestexpense 20 EBT 21 Taxes Actual 6/30/21 $20,500.00 Projected 6/30/22 $21,525.00 1,575.00 16,400.00 1,500.00 $2,600.00 17,220.00 $2,730.00 189.60 $2,540.40 160.00 22 23 Netincome $2,440.00 610.00 $1.830.00 635.10 $1.905.30 Projected: Prior to Distribute as 24 Actual Distribution Dividend Distribute as Repurchase 25 Balance Sheets 6/30/21 6/30/22 7/1/2022 7/1/2022 26 Assets 27 Cash $180.00 $189.00 28 Short-term investments 300.00 1,080.00 29 Accounts receivable 2,050.00 2,152.50 30 Inventories 3,250.00 3,412.50 31 Total currentassets $5,780.00 $6,834.00 32 Netplantand equipment 15,000.00 15,750.00 33 Total assets $20.780.00 $22.584.00 34 35 Liabilities & Equity 36 Accounts payable 37 Accruals $900.00 1,850.00 $945.00 1,942.50 38 Short-term debt 350.00 39 Total current liabilities $3,100.00 0.00 $2,887.50 40 Long-term debt 2,224.00 2,335.20 41 Total liabilities $5,324.00 $5,222.70 42 Common stock 43 Treasury stock 5,638.00 5,638.00 -450.00 -450.00 44 Retained earnings 45 Total common equity 46 Total liabilities & equity 47 10,268.00 $15,456.00 12,173.30 $17,361.30 $20.780.00 $22.584.00 48 c. Calculating JCI's projected free cash flow 49 Tax rate 50 51 52 (Millions of Dollars) 25% Actual 6/30/21 Projected 6/30/22 53 Operating currentassets 54 Operating current liabilities 55 Netoperating working capital 56 Netplantand equipment 57 Total net operating capital 58 Netoperating profit after taxes 59 Investment in operating capital 60 Free cash flow (FCF) 61 62 d. Calculating JCI's current intrinsic stock price (the price on 6/30/2021) and the projected intrinsic stock price for 6/30/2022 63 e. Calculating the projected intrinsic stock price on 7/1/2022 if JCI distributes the cash as dividends 64 f. Calculating the projected intrinsic stock price on 7/1/2022 if JCI distributes the cash through stock repurchases and the number of shares remaining outstanding after the repurchase 65 66 WACC 67 Number of shares 68 FCF constant growth rate 69 70 71 (Millions of Dollars) 72 Horizon value 73 Value of operations 74 9.0% 800 million 5.0% Actual 6/30/21 Projected 6/30/22 Distribute as 75 Actual Projected Dividend 76 (in millions, exceptintrinsic stock price) 6/30/21 6/30/22 7/1/2022 77 Value of operations 78 +Value of nonoperating assets 79 Total intrinsic value of firm 80 - Debt 81 Intrinsic value of equity 82 +Number ofshares 83 Intrinsic price per share 84 85 Distribute as Repurchase 7/1/2022

1 Distributions as Dividends or Repurchases 2 3 Amount of distribution 4 $800 million 5 a. Filling in the missing values in the balance sheet column for July 1, 2022, which is labeled "Distribute as Dividends," 6 7 if JCI distributes its short-term securities as dividends; JCI did not have to establish an account for dividends payable prior to the distribution 8 b. Filling in the missing values in the balance sheet column for July 1, 2022, which is labeled "Distribute as Repurchase," if JCI distributes its short-term securities through stock repurchases 9 10 11 Projecting JCI's Financial Statements 12 (Millions of Dollars) 13 14 Income Statements 15 Netsales 16 Costs (exceptdepreciation) 17 Depreciation 18 EBIT 19 Interestexpense 20 EBT 21 Taxes Actual 6/30/21 $20,500.00 Projected 6/30/22 $21,525.00 1,575.00 16,400.00 1,500.00 $2,600.00 17,220.00 $2,730.00 189.60 $2,540.40 160.00 22 23 Netincome $2,440.00 610.00 $1.830.00 635.10 $1.905.30 Projected: Prior to Distribute as 24 Actual Distribution Dividend Distribute as Repurchase 25 Balance Sheets 6/30/21 6/30/22 7/1/2022 7/1/2022 26 Assets 27 Cash $180.00 $189.00 28 Short-term investments 300.00 1,080.00 29 Accounts receivable 2,050.00 2,152.50 30 Inventories 3,250.00 3,412.50 31 Total currentassets $5,780.00 $6,834.00 32 Netplantand equipment 15,000.00 15,750.00 33 Total assets $20.780.00 $22.584.00 34 35 Liabilities & Equity 36 Accounts payable 37 Accruals $900.00 1,850.00 $945.00 1,942.50 38 Short-term debt 350.00 39 Total current liabilities $3,100.00 0.00 $2,887.50 40 Long-term debt 2,224.00 2,335.20 41 Total liabilities $5,324.00 $5,222.70 42 Common stock 43 Treasury stock 5,638.00 5,638.00 -450.00 -450.00 44 Retained earnings 45 Total common equity 46 Total liabilities & equity 47 10,268.00 $15,456.00 12,173.30 $17,361.30 $20.780.00 $22.584.00 48 c. Calculating JCI's projected free cash flow 49 Tax rate 50 51 52 (Millions of Dollars) 25% Actual 6/30/21 Projected 6/30/22 53 Operating currentassets 54 Operating current liabilities 55 Netoperating working capital 56 Netplantand equipment 57 Total net operating capital 58 Netoperating profit after taxes 59 Investment in operating capital 60 Free cash flow (FCF) 61 62 d. Calculating JCI's current intrinsic stock price (the price on 6/30/2021) and the projected intrinsic stock price for 6/30/2022 63 e. Calculating the projected intrinsic stock price on 7/1/2022 if JCI distributes the cash as dividends 64 f. Calculating the projected intrinsic stock price on 7/1/2022 if JCI distributes the cash through stock repurchases and the number of shares remaining outstanding after the repurchase 65 66 WACC 67 Number of shares 68 FCF constant growth rate 69 70 71 (Millions of Dollars) 72 Horizon value 73 Value of operations 74 9.0% 800 million 5.0% Actual 6/30/21 Projected 6/30/22 Distribute as 75 Actual Projected Dividend 76 (in millions, exceptintrinsic stock price) 6/30/21 6/30/22 7/1/2022 77 Value of operations 78 +Value of nonoperating assets 79 Total intrinsic value of firm 80 - Debt 81 Intrinsic value of equity 82 +Number ofshares 83 Intrinsic price per share 84 85 Distribute as Repurchase 7/1/2022

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

ChapterA2: Investments

Section: Chapter Questions

Problem 10MCQ

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