Start with the partial model in the file Ch14 P13 Build a Model.xls on the textbook’s Web site. J. Clark Inc. (JCI), a manufacturer and distributor of sports equipment, has grown until it has become a stable, mature company. Now JCI is planning its first distribution to shareholders. (See the file for the most recent year’s financial statements and projections for the next year, 2011; JCI’s fiscal year ends on June 30.) JCI plans to liquidate and distribute $500 million of its short-term securities on July 1, 2011, the first day of the next fiscal year, but has not yet decided whether to distribute with dividends or with stock repurchases.

a. Assume first that JCI distributes the $500 million as dividends. Fill in the missing values in the file’s balance sheet column for July 1, 2011, that is labeled Distribute as Dividends. (Hint: Be sure that the balance sheets balance after you fill in the missing items.) Assume that JCI did not have to establish an account for dividends payable prior to the distribution.
b. Now assume that JCI distributes the $500 million through stock repurchases. Fill in the missing values in the file’s balance sheet column for July 1, 2011, that is labeled Distribute as Repurchase.
c. Calculate JCI’s projected free cash flow; the tax rate is 40%.
d. What is JCI’s current intrinsic stock price (the price on 6/30/2010)? What is the projected intrinsic stock price for 6/30/2011?
e. What is the projected intrinsic stock price on 7/1/2011 if JCI distributes the cash as dividends?
f. What is the projected intrinsic stock price on 7/1/2011 if JCI distributes the cash through stock repurchases? How many shares will remain outstanding after the repurchase?