Williams Company is a manufacturer of auto parts having the following financial statements for 2019. Balance Sheet December 31, 2019 Cash $ 278,000 Accounts receivable 168,000 Inventory 403,000 Total current assets $ 849,000 Long-lived assets 1,820,000 Total assets $ 2,669,000 Current liabilities 416,000 Long-term debt 900,000 Shareholders' equity 1,353,000 Total debt and equity $ 2,669,000 Income Statement For the year ended December 31, 2019 Sales $ 3,680,000 Cost of sales 2,860,000 Gross margin 820,000 Operating expenses* 518,000 Operating income 302,000 Taxes 105,700 Net income $ 196,300 Cash Flow from Operations For the year ended December 31, 2019 Net income $ 196,300 Plus depreciation expense 150,000 + Decrease (−increase) in accounts receivable and inventory (153,000 ) + Increase (−decrease) in current liabilities 115,000 Cash flow from operations $ 308,300 *Operating expenses include depreciation expense. Additional financial information, including industry averages for 2019, where appropriate, includes: Industry Capital expenditures $ 165,000 Income tax rate 35 % 35.0 % Depreciation expense $ 150,000 Dividends $ 32,000 Year-end stock price $ 4.05 25.00 Number of outstanding shares 1,980,000 Sales multiplier 1.50 Free cash flow multiplier 18.00 Earnings multiplier 9.00 Cost of capital 5 % Accounts receivable turnover 11.10 Inventory turnover 10.50 Current ratio 2.30 Quick ratio 1.90 Cash flow from operations ratio 1.20 Free cash flow ratio 1.10 Gross margin percentage 30.0 % Return on assets (net book value) 20.0 % Return on equity 30.0 % Required: Develop a business valuation for Williams Company for 2019 using the following methods: (1) book value of equity, (2) market value of equity, (3) discounted cash flow (DCF), (4) enterprise value, and (5) all the multiples-based valuations for which there is an industry average multiplier. For the calculation of the DCF valuation, you may use the simplifying assumption that free cash flows will continue indefinitely at the amount in 2019.

Williams Company is a manufacturer of auto parts having the following financial statements for 2019. Balance Sheet December 31, 2019 Cash $ 278,000 Accounts receivable 168,000 Inventory 403,000 Total current assets $ 849,000 Long-lived assets 1,820,000 Total assets $ 2,669,000 Current liabilities 416,000 Long-term debt 900,000 Shareholders' equity 1,353,000 Total debt and equity $ 2,669,000 Income Statement For the year ended December 31, 2019 Sales $ 3,680,000 Cost of sales 2,860,000 Gross margin 820,000 Operating expenses* 518,000 Operating income 302,000 Taxes 105,700 Net income $ 196,300 Cash Flow from Operations For the year ended December 31, 2019 Net income $ 196,300 Plus depreciation expense 150,000 + Decrease (−increase) in accounts receivable and inventory (153,000 ) + Increase (−decrease) in current liabilities 115,000 Cash flow from operations $ 308,300 *Operating expenses include depreciation expense. Additional financial information, including industry averages for 2019, where appropriate, includes: Industry Capital expenditures $ 165,000 Income tax rate 35 % 35.0 % Depreciation expense $ 150,000 Dividends $ 32,000 Year-end stock price $ 4.05 25.00 Number of outstanding shares 1,980,000 Sales multiplier 1.50 Free cash flow multiplier 18.00 Earnings multiplier 9.00 Cost of capital 5 % Accounts receivable turnover 11.10 Inventory turnover 10.50 Current ratio 2.30 Quick ratio 1.90 Cash flow from operations ratio 1.20 Free cash flow ratio 1.10 Gross margin percentage 30.0 % Return on assets (net book value) 20.0 % Return on equity 30.0 % Required: Develop a business valuation for Williams Company for 2019 using the following methods: (1) book value of equity, (2) market value of equity, (3) discounted cash flow (DCF), (4) enterprise value, and (5) all the multiples-based valuations for which there is an industry average multiplier. For the calculation of the DCF valuation, you may use the simplifying assumption that free cash flows will continue indefinitely at the amount in 2019.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question

Williams Company is a manufacturer of auto parts having the following financial statements for 2019.

Balance Sheet
December 31, 2019
Cash	$	278,000
Accounts receivable		168,000
Inventory		403,000
Total current assets	$	849,000
Long-lived assets		1,820,000
Total assets	$	2,669,000
Current liabilities		416,000
Long-term debt		900,000
Shareholders' equity		1,353,000
Total debt and equity	$	2,669,000

Income Statement
For the year ended December 31, 2019
Sales	$	3,680,000
Cost of sales		2,860,000
Gross margin		820,000
Operating expenses*		518,000
Operating income		302,000
Taxes		105,700
Net income	$	196,300

Cash Flow from Operations
For the year ended December 31, 2019
Net income	$	196,300
Plus depreciation expense		150,000
+ Decrease (−increase) in accounts receivable and inventory		(153,000	)
+ Increase (−decrease) in current liabilities		115,000
Cash flow from operations	$	308,300

*Operating expenses include depreciation expense.

Additional financial information, including industry averages for 2019, where appropriate, includes:

		Industry
Capital expenditures	$	165,000
Income tax rate		35	%	35.0	%
Depreciation expense	$	150,000
Dividends	$	32,000
Year-end stock price	$	4.05		25.00
Number of outstanding shares		1,980,000
Sales multiplier				1.50
Free cash flow multiplier				18.00
Earnings multiplier				9.00
Cost of capital		5	%
Accounts receivable turnover				11.10
Inventory turnover				10.50
Current ratio				2.30
Quick ratio				1.90
Cash flow from operations ratio				1.20
Free cash flow ratio				1.10
Gross margin percentage				30.0	%
Return on assets (net book value)				20.0	%
Return on equity				30.0	%

Required:

Develop a business valuation for Williams Company for 2019 using the following methods: (1) book value of equity, (2) market value of equity, (3) discounted cash flow (DCF), (4) enterprise value, and (5) all the multiples-based valuations for which there is an industry average multiplier. For the calculation of the DCF valuation, you may use the simplifying assumption that free cash flows will continue indefinitely at the amount in 2019.

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