Favorite Food Systems Inc. Favorite Food Systems Inc. which was founded by John Favorite in 1994, is a West Coast chain with current annual sales of approximately $75 million. In 2003, the company went public. (The Favorite family now controls about 57 percent of the common stock.)

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Chapter1: Financial Statements And Business Decisions
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One company that the analysis indicated as potentially suitable for acquisition by Admiral is
Favorite Food Systems Inc. Favorite Food Systems Inc. which was founded by John Favorite in 1994, is a West
Coast chain with current annual sales of approximately $75 million. In 2003, the company went public.
(The Favorite family now controls about 57 percent of the common stock.)

1. The merger will generate $1.0 million in after tax earnings each year from synergies. Calculate the free cash flow from the synergies for 5 years, assuming $100,000 of depreciation for each year.

2. Develop the terminal year value of the synergies based on the fifth year of the cash flows. Assume the growth rate of the synergistic cash flows after the terminal year is 1.0%

3. Calculate the Admiral Foods post-merger income statement and earnings per share, assuming an exchange ratio of 0.45.

Favorite Food Systems, Inc. Balance Sheet (in Millions of Dollars)
Current liabilities
Long-term debt
Common equity
Current assets
Fixed assets, net
Total assets
$10.6
12.1
$22.7
Favorite Food Systems, Inc. Income Statement (in Millions of Dollars)
Sales
Less: Expenses, excluding depreciation
Less: Depreciation
Earnings after taxes
Earnings before interest and taxes
Less: Interest
Earnings before taxes
Less: Taxes (40%)
Dividends per share
Common stock (price per share)
(2,000,000 shares)
Total liabilities and equity
Additional Information
Admiral Foods
Corporation
$2.50
$50
$6.5
2.2
14.0
$22.7
$75.2
65.4
1.4
$ 8.4
0.4
$8.0
3.2
$ 4.8
Favorite Food
Systems
$ 0.60
$15
Transcribed Image Text:Favorite Food Systems, Inc. Balance Sheet (in Millions of Dollars) Current liabilities Long-term debt Common equity Current assets Fixed assets, net Total assets $10.6 12.1 $22.7 Favorite Food Systems, Inc. Income Statement (in Millions of Dollars) Sales Less: Expenses, excluding depreciation Less: Depreciation Earnings after taxes Earnings before interest and taxes Less: Interest Earnings before taxes Less: Taxes (40%) Dividends per share Common stock (price per share) (2,000,000 shares) Total liabilities and equity Additional Information Admiral Foods Corporation $2.50 $50 $6.5 2.2 14.0 $22.7 $75.2 65.4 1.4 $ 8.4 0.4 $8.0 3.2 $ 4.8 Favorite Food Systems $ 0.60 $15
Admiral Foods Corporation Balance Sheet (in Millions of Dollars)
$225
Current liabilities
307
Long-term debt
Common equity (10,000,000 shares)
Total liabilities and equity
Current assets
Fixed assets, net
Total assets
$532
Admiral Foods Corporation Income Statement (in Millions of Dollars)
Sales
Less: Expenses, excluding depreciation
Less: Depreciation
Earnings before interest and taxes
Less: Interest
Earnings before taxes
Less: Taxes (40%)
Earnings after taxes
$101
106
325
$532
$1,261.0
1,118.2
36.0
$106.8
12.8
$94.0
37.6
$ 56.4
Transcribed Image Text:Admiral Foods Corporation Balance Sheet (in Millions of Dollars) $225 Current liabilities 307 Long-term debt Common equity (10,000,000 shares) Total liabilities and equity Current assets Fixed assets, net Total assets $532 Admiral Foods Corporation Income Statement (in Millions of Dollars) Sales Less: Expenses, excluding depreciation Less: Depreciation Earnings before interest and taxes Less: Interest Earnings before taxes Less: Taxes (40%) Earnings after taxes $101 106 325 $532 $1,261.0 1,118.2 36.0 $106.8 12.8 $94.0 37.6 $ 56.4
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