Consider the following balance sheet and income statement for Mmm Good Foods Inc. (the company that operates Tasty Fried Chicken and Pizza Party), in condensed form, including some information from the cash flow statement: (amounts are in millions) Mmm Good Foods Inc. Balance Sheet 2016 Cash and short-term Investments $ 706 Accounts receivable 372 Inventory 38 Other current assets 382 Long-lived assets 4,008 Total assets $ 5,506 Current liabilities $ 1,379 Total liabilities 11,138 Noncontrolling interest Shareholders’ equity (-5,632 ) Total liabilities and equity $ 5,506 Income Statement Sales $ 6,386 Cost of sales 3,508 Gross margin $ 2,878 Earnings before interest and taxes $ 1,627 Interest 309 Taxes 326 Income from discontinued operations 623 Net income $ 1,615 Share price $ 65 Earnings per share 4.31 Number of outstanding shares (millions) 355.2 Cash Flows Cash flow from operations $ 1,206 Capital expenditures 424 Dividends 754 Required: Determine the valuation of the company at the end of 2016 using each of the following three methods. Assume earnings and cash flows for the coming 10 years are equal to the earnings and cash flows in 2016; the appropriate free cash flow multiple is 23.4. (Enter your answers in millions rounded to nearest whole number.)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Consider the following balance sheet and income statement for Mmm Good Foods Inc. (the company that operates Tasty Fried Chicken and Pizza Party), in condensed form, including some information from the cash flow statement: (amounts are in millions)

	Mmm Good Foods Inc.
Balance Sheet	2016
Cash and short-term Investments	$	706
Accounts receivable		372
Inventory		38
Other current assets		382
Long-lived assets		4,008
Total assets	$	5,506
Current liabilities	$	1,379
Total liabilities		11,138
Noncontrolling interest
Shareholders’ equity		(-5,632	)
Total liabilities and equity	$	5,506
Income Statement
Sales	$	6,386
Cost of sales		3,508
Gross margin	$	2,878
Earnings before interest and taxes	$	1,627
Interest		309
Taxes		326
Income from discontinued operations		623
Net income	$	1,615
Share price	$	65
Earnings per share		4.31
Number of outstanding shares (millions)		355.2
Cash Flows
Cash flow from operations	$	1,206
Capital expenditures		424
Dividends		754

Required:

Determine the valuation of the company at the end of 2016 using each of the following three methods. Assume earnings and cash flows for the coming 10 years are equal to the earnings and cash flows in 2016; the appropriate free cash flow multiple is 23.4. (Enter your answers in millions rounded to nearest whole number.)

a. Market capitalization.

b. Enterprise value.

c. Free cash flow multiple.

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