16.23 Multiples analysis It is 15 August 2017 and your company is considering the possibility of purchasing the OfficeExpress business from Supplies Ltd. Since OfficeExpress does not have publicly traded shares of its own, you have decided to use TopOffice as a comparable company to help you deter- mine the market value of OfficeExpress.

This morning, TopOffice ordinary shares were trading at $8.15 per share, and the company had 1.89 billion shares outstanding. You estimate that the market value of the companys other outstanding securities is $100 billion. Its revenues from sales were $143.3 billion last year. OfficeExpresss revenue in 2016 was $62.2 billion. Based on the enterprise value/revenue ratio, what is the total value of OfficeExpress that is implied by the TopOffice market values?

16.30 Break even You have started a business that sells a home gardening system that allows people to grow vegeta- bles on the bench in their kitchens. You are considering two options for marketing your product. The first is to advertise on local TV. The second is to distribute flyers in the local community. The TV option, which costs $50 000 annually, will promote the product more effectively and create a demand for 1200 units per year. The flyer advertisement costs only $6000 annually but will create a demand for only 250 units per year. The price per unit of the indoor gardening system is $100, and the variable cost is $60 per unit. Assume that the production capacity is not limited and that the marketing cost is the only fixed cost involved in your business. What are the break-even points for both marketing options? Which one should you choose?

16.31 Going-concern value Ringwood Motors is a chain of used car dealerships that has publicly traded shares. Using the adjusted book value approach, you have estimated the value of Ringwood Motors to be $45 646 000. The company has $40.5 million of debt outstanding. Its share price is $5.5 per share, and there are 1 378 000 shares outstanding. What is the going-concern value of Ringwood Motors? Use the following information concerning Johnson Machine Tools Ltd in problems 16.31, 16.32 and 16.33.

Johnsons income statement from the fiscal year that ended this past December is:

Revenue	995
Cost of sales	652
Gross profit	343
Selling general and admin expenses	135
Operating profit (EBIT)	208
Interest expense	48
Earnings before tax	160
TAX	64
profit	96

16.36 Valuing a private business You want to estimate the value of a privately owned restaurant that is financed entirely with equity. Its most recent income statement is as follows:

Revenue	3 000 000
Cost of sales	600 000
Gross profit	2 400 000
Salaries and wages	1 400 000
Selling expenses	100 000
Operating profit (EBIT)	900 000
Tax	315 000
Profit	585 000

You note that the profitability of this restaurant is significantly lower than that of comparable restaurants, primarily due to high salary and wage expenses. Further investigation reveals that the annual salaries for the owner and his wife, the companys accountant, are $900 000 and $300 000, respectively. These salaries are much higher than the industry median salaries for these two posi- tions of $100 000 and $50 000, respectively. Compensation for other employees ($200 000 in total) appears to be consistent with the market rates. The median P/E ratio of comparable restaurants with no debt is 10. What is the total value of this restaurant?

17.0

Swan Supply Ltd has a profit of $1,212,335 on assets of $12,522,788 and retains 70 percent of its profit every year. What is the companys internal growth rate?

17.3 Ritchie Marble Ltd has total assets of $12,899,450, sales of $18,174,652, and profit of $4,589,774. The company expects its sales to grow by 25 percent next year. All assets and costs (including tax) vary directly with sales, and the company expects to maintain its payout ratio of 65 percent. Calculate the EFN.