The December 31, 2014 balance sheet and the income statement for the period ending December 31 for Manpower Inc., a world leader in staffing and workforce management solutions, follow (dollars in millions). 

You are interested in purchasing Manpower and have analyzed the future prospects of the company, estimating that it should be able to maintain at least its current earnings amount for the next ten years, at which time the assets would be worthless. You also estimate that the discount rate over that time period will be 6 percent.

REQUIRED:
a. Assuming that net income is equal to cash inflows, how much should you be willing to pay for Manpower?
b. What is the book value of Manpower?
c. Explain why there is a difference between the book value of Manpower and the amount you are willing to pay for it. What assumptions and/or principles of financial accounting are important here?

Transcribed Image Text:

Balance Sheet Current assets Long-lived assets Income Statement $20,763 $4,240 $5,034 2,149 Liabilities Sales Common stock Retained earnings Total liabilities and shareholders' equity 20,335 Expenses 1,275 Net income 428 1,668 Total assets $7,183 $7,183