Bakers Industries believes that its two primary product lines, pastries and savory food, are rapidly becoming outdated. Its free cash flow is rapidly diminishing as it loses market share to new firms entering its industry. Bakers Industries has OMR 375 million in debt outstanding. Senior management expects the pastries and savory food product lines to generate OMR 48 million and OMR 29 million, respectively, in earnings before interest, taxes, depreciation, and amortization next year. Senior management also believes that they will not be able to upgrade these product lines due to declining cash flow and excessive current leverage. A competitor to its pastries business last year sold for 19 times EBITDA. Moreover, a company that is similar to its savory food product line sold last month for 22 times EBITDA. Estimate Baker's breakup value before taxes.
Bakers Industries believes that its two primary product lines, pastries and savory food, are rapidly becoming outdated. Its free cash flow is rapidly diminishing as it loses market share to new firms entering its industry. Bakers Industries has OMR 375 million in debt outstanding. Senior management expects the pastries and savory food product lines to generate OMR 48 million and OMR 29 million, respectively, in earnings before interest, taxes, depreciation, and amortization next year. Senior management also believes that they will not be able to upgrade these product lines due to declining cash flow and excessive current leverage. A competitor to its pastries business last year sold for 19 times EBITDA. Moreover, a company that is similar to its savory food product line sold last month for 22 times EBITDA. Estimate Baker's breakup value before taxes.
Chapter18: The Management Of Accounts Receivable And Inventories
Section: Chapter Questions
Problem 12P
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Question
![Bakers Industries believes that its two primary product lines,
pastries and savory food, are rapidly becoming outdated. Its free
cash flow is rapidly diminishing as it loses market share to new
firms entering its industry. Bakers Industries has OMR 375
million in debt outstanding. Senior management expects the
pastries and savory food product lines to generate OMR 48
million and OMR 29 million, respectively, in earnings before
interest, taxes, depreciation, and amortization next year. Senior
management also believes that they will not be able to upgrade
these product lines due to declining cash flow and excessive
current leverage. A competitor to its pastries business last year
sold for 19 times EBITDA. Moreover, a company that is similar
to its savory food product line sold last month for 22 times
EBITDA. Estimate Baker's breakup value before taxes.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F8d714e52-8dfc-49e7-b4f9-2358143a2b57%2Fc0e3b9b9-79e9-4508-8910-93c541774c75%2Fz00tf55.jpeg&w=3840&q=75)
Transcribed Image Text:Bakers Industries believes that its two primary product lines,
pastries and savory food, are rapidly becoming outdated. Its free
cash flow is rapidly diminishing as it loses market share to new
firms entering its industry. Bakers Industries has OMR 375
million in debt outstanding. Senior management expects the
pastries and savory food product lines to generate OMR 48
million and OMR 29 million, respectively, in earnings before
interest, taxes, depreciation, and amortization next year. Senior
management also believes that they will not be able to upgrade
these product lines due to declining cash flow and excessive
current leverage. A competitor to its pastries business last year
sold for 19 times EBITDA. Moreover, a company that is similar
to its savory food product line sold last month for 22 times
EBITDA. Estimate Baker's breakup value before taxes.
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