The following information is extracted from the forecasted balance sheet and income statement of Good Ltd and Bad Ltd. As on 31 December 2020, market value of Good Ltd’s and Bad Ltd’s shares were $1.10 and $1.95 per share, respectively, with 1,000,000 shares outstanding in both the companies. REQUIRED (a) Calculate free cash flow for both the companies for the years 2021 to 2023. (b) Calculate the equity value per share for both the companies. (c) Assume your client holds both companies’ shares and wants to sell one of the companies’ shares. Based on your valuations in (b), which company’s shares would you recommend for this client to sell? Why
The following information is extracted from the forecasted balance sheet and income statement of Good Ltd and Bad Ltd. As on 31 December 2020, market value of Good Ltd’s and Bad Ltd’s shares were $1.10 and $1.95 per share, respectively, with 1,000,000 shares outstanding in both the companies. REQUIRED (a) Calculate free cash flow for both the companies for the years 2021 to 2023. (b) Calculate the equity value per share for both the companies. (c) Assume your client holds both companies’ shares and wants to sell one of the companies’ shares. Based on your valuations in (b), which company’s shares would you recommend for this client to sell? Why
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
The following information is extracted from the
REQUIRED
(a) Calculate
(b) Calculate the equity value per share for both the companies.
(c) Assume your client holds both companies’ shares and wants to sell one of the companies’ shares. Based on your valuations in (b), which company’s shares would you recommend for this client to sell? Why?
Transcribed Image Text:Good Ltd
Change in
Year Net income book value
of assets
2021 $450,000
2022
480,000
2023
500,000
-$20,000
22,000
-5,000
Change in
book value Net income
of debt
$1,000
-2,000
0
$700,000
660,000
650,000
Bad Ltd
Change in
book value
of assets
$6,000
2,000
-8,000
Change in
book value
of debt
$0
1,500
7,500
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