Answered step by step
Verified Expert Solution
Question
1 Approved Answer
8 The Harrison Bicycle Company had the following operating results for 2015-2016. In addition, the company paid dividends in both 2015 and 2016 of $80,000
8
- The Harrison Bicycle Company had the following operating results for 2015-2016. In addition, the company paid dividends in both 2015 and 2016 of $80,000 per year and made capital expenditures in both years of $230,000 per year. The company's stock price in 2015 was $14.20 and $12.50 in 2016. Also in 2016, the industry average earnings multiple for the bicycle industry was 8 and the free cash flow and sales multiples were 16 and 1.35, respectively. The company is publicly owned and has 1,400,000 shares of outstanding stock at the end of 2016.
- Balance Sheet, Dec 31,20162015Cash$267,000$100,000Accounts Receivable$525,000$400,000Inventory$450,000$300,000Total Current Assets$1,242,000$800,000Long-lived Assets1,205,0001,100,000Total Assets$2,447,000$1,900,000Current Liabilities$500,000$300,000Long-term Debt600,000500,000Shareholder Equity1,347,0001,100,000Total Debt and Equity$2,447,000$1,900,000Income Statement, for year ended Dec 31,20162015Sales$6,250,000$5,450,000Cost of Sales5,125,0004,400,000Gross Margin1,125,0001,050,000Operating Expenses580,000550,000OperatingIncome545,000500,000Taxes218,000200,000Net Income$327,000$300,000CashFlow From Operations20162015Net Income$327,000$300,000Plus Depreciation Expense125,000125,000+ Decrease (-inc) in AccRec. and Inv.(275,000)-+ Increase (-dec) in Cur. Liabl.200,000-Cash Flow from Operations$377,000$425,000The value of the company, calculated using the free cash flow multiple for 2016 is:
- $2,520,000$2,616,000$8,437,500$1,347,000$1,072,000
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started