1 calculate multiples- based method- free cash flow

2. discounted cash flow method

Brooks Plumbing Products Inc. (BPP) manufactures plumbing fixtures and other home improvement products that are sold in Home Depot and Walmart as well as hardware stores. BPP has a solid reputation for providing value products, good quality. and a good price. The company has been approached by an investment banking firm representing a third company. Garden Specialties Inc. (GSI) that is interested in acquiring BPP. The acquiring firm (GSI) is a retailer of garden supplies, it sees the potential synergies of the combined firm and is willing to pay BPP shareholders $40 cash per share for their stock, which is greater than the current stock price the stock has traded at about $35 in recent months. Summary financial information about BPP follows BROOKS PLUMBING PRODUCTS INC. Selected Financial Information For the Years Ended December 31 2019 Industry Average 2019 2018 Cash Accounts receivable Inventory Long-lived assets %80,109,778 % 3,646,227 56, 968,465 87,583,771 39,855,416 60,092,645 Gross book value 167,468,377 143,968,377 100,810,80996,077,302 170, 777,409 188,655,338 67,525, 209 119, 235,766 121,204,274 32,187,364 38,094, 302 126,131,33887,831,369 23,690,000 13,180, 336 669,434,771 640,676,465 499,607,788 478,441,001 102,857,355 134,955,229 Net book value Replacement cost Liquidation valu current liabilities Long-term debt Shareholders equity Capital expenditures Sales Cost of sales Operating expense* Income tax rate Depreciation expense Dividends Year-end stock price Number of outstanding shares Sales multiplier Free cash flow multiplier Earnings multiplier 68,924,002 38% 38% 38 . 00% 18,956,493 15,854,254 1,440,00e 4.89 27,589,554 24,663,554 2,940,00e 37.68 $ 1.50 8.80 13.60 Earnings multiplier Cost of capital Accounts receivable turnover Inventory turnover Current ratio Quick ratio Cash flow ratio Free cash flow ratio Gross margin percentage Return on assets (net book value) Return on equity Earnings per share 13.60 5.1% 5. 1% 5.40 8.60 1.70 1.10 1.50 1.10 30 , 0% 20.0% 27.0% $2.34 "Operating expense includes depreciation expense Required 1. What is the valuation of BPP (for 2019) using the market value method? 2. What is the valuation of BPP (for 2019) using the book value method? 3. What are the valuations of BPP (for 2019) using the multiples-based methods for sales, earnings, and free cash flow? 4. What is the estimated value for BPP using the discounted free cash flow method, assuming that the 2019 amount of free cash flow continues indefinitely? 5. Which of the methods would you use? 6. Is the GSI offer a good one? (For requirements 1 to 4, round your answers to the nearest whole dollar amount.) Answer is not complete. Market value of equity method S 1,039,574,395 126,131,338 S 1,004,152,157 S 564,687,898 2. Book value of equity method 3 Multiples-based method Sales Multiples-based method Earnings Multiples-based method Free cash flow 4. Discounted cash flow method 5. Which of the methods would you use? 6. Is the GSI offer a good one? Market value of equity methood Yes Brooks Plumbing Products Inc. (BPP) manufactures plumbing fixtures and other home improvement products that are sold in Home Depot and Walmart as well as hardware stores. BPP has a solid reputation for providing value products, good quality. and a good price. The company has been approached by an investment banking firm representing a third company. Garden Specialties Inc. (GSI) that is interested in acquiring BPP. The acquiring firm (GSI) is a retailer of garden supplies, it sees the potential synergies of the combined firm and is willing to pay BPP shareholders $40 cash per share for their stock, which is greater than the current stock price the stock has traded at about $35 in recent months. Summary financial information about BPP follows BROOKS PLUMBING PRODUCTS INC. Selected Financial Information For the Years Ended December 31 2019 Industry Average 2019 2018 Cash Accounts receivable Inventory Long-lived assets %80,109,778 % 3,646,227 56, 968,465 87,583,771 39,855,416 60,092,645 Gross book value 167,468,377 143,968,377 100,810,80996,077,302 170, 777,409 188,655,338 67,525, 209 119, 235,766 121,204,274 32,187,364 38,094, 302 126,131,33887,831,369 23,690,000 13,180, 336 669,434,771 640,676,465 499,607,788 478,441,001 102,857,355 134,955,229 Net book value Replacement cost Liquidation valu current liabilities Long-term debt Shareholders equity Capital expenditures Sales Cost of sales Operating expense* Income tax rate Depreciation expense Dividends Year-end stock price Number of outstanding shares Sales multiplier Free cash flow multiplier Earnings multiplier 68,924,002 38% 38% 38 . 00% 18,956,493 15,854,254 1,440,00e 4.89 27,589,554 24,663,554 2,940,00e 37.68 $ 1.50 8.80 13.60 Earnings multiplier Cost of capital Accounts receivable turnover Inventory turnover Current ratio Quick ratio Cash flow ratio Free cash flow ratio Gross margin percentage Return on assets (net book value) Return on equity Earnings per share 13.60 5.1% 5. 1% 5.40 8.60 1.70 1.10 1.50 1.10 30 , 0% 20.0% 27.0% $2.34 "Operating expense includes depreciation expense Required 1. What is the valuation of BPP (for 2019) using the market value method? 2. What is the valuation of BPP (for 2019) using the book value method? 3. What are the valuations of BPP (for 2019) using the multiples-based methods for sales, earnings, and free cash flow? 4. What is the estimated value for BPP using the discounted free cash flow method, assuming that the 2019 amount of free cash flow continues indefinitely? 5. Which of the methods would you use? 6. Is the GSI offer a good one? (For requirements 1 to 4, round your answers to the nearest whole dollar amount.) Answer is not complete. Market value of equity method S 1,039,574,395 126,131,338 S 1,004,152,157 S 564,687,898 2. Book value of equity method 3 Multiples-based method Sales Multiples-based method Earnings Multiples-based method Free cash flow 4. Discounted cash flow method 5. Which of the methods would you use? 6. Is the GSI offer a good one? Market value of equity methood Yes