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. 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 56,968,46587,503,771 39,855,41660,092,645 Gross book value 167,468,377 143,968,377 96,077,302 170,777,409 188,655,338 67,525,209 119,235,766 121,204, 274 38,094,302 126,131,338 87,831,369 23,690,000 13,180,336 669,434,771640,676,465 499,607,788 478,441,001 102,857,355 134,955,229 Net book value 100,810,809 68,924,002 32,187,364 Replacement cost Liquidation value Current liabilities Long-term debt Shareholders' equity Capital expenditures Sales Cost of sales Operating expense* Incometax rate Depreciation expense Dividends Year-end stock price Number of outstanding shares Sales multiplier Free cash flow multiplier Earnings multiplier Cost of capital Accounts receivable turnover Inventory turnover Current rati Quick ratio Cash flow ratio Free cash flow ratio Gross margin percentage Return on assets (net book value Return on equity Earnings per share 38% 38% 38 . 00% 15,854,254 1,440,000 24.89 27,589,55424,663,554 18,956,493 2,940,000 37.68 $ 1.50 8.80 13.60 5.1% 5.1% 5.40 8.60 1.70 1.10 1.50 1.10 30 . 0% 29.0% 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 vou use? 6. Is the GSI offer a good one? (For requirements 1 to 4, round your answers to the nearest whole dollar amount.) 1. Market value of equity methood 2. Book value of equity method 3. Multiples-based method - Sales Multiples-based method Eanings Multiples-based method -Free cash flow 4. Discounted cash flow method 5. Which of the methods would you use? 6. Is the GSl offer a good one? 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. 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 56,968,46587,503,771 39,855,41660,092,645 Gross book value 167,468,377 143,968,377 96,077,302 170,777,409 188,655,338 67,525,209 119,235,766 121,204, 274 38,094,302 126,131,338 87,831,369 23,690,000 13,180,336 669,434,771640,676,465 499,607,788 478,441,001 102,857,355 134,955,229 Net book value 100,810,809 68,924,002 32,187,364 Replacement cost Liquidation value Current liabilities Long-term debt Shareholders' equity Capital expenditures Sales Cost of sales Operating expense* Incometax rate Depreciation expense Dividends Year-end stock price Number of outstanding shares Sales multiplier Free cash flow multiplier Earnings multiplier Cost of capital Accounts receivable turnover Inventory turnover Current rati Quick ratio Cash flow ratio Free cash flow ratio Gross margin percentage Return on assets (net book value Return on equity Earnings per share 38% 38% 38 . 00% 15,854,254 1,440,000 24.89 27,589,55424,663,554 18,956,493 2,940,000 37.68 $ 1.50 8.80 13.60 5.1% 5.1% 5.40 8.60 1.70 1.10 1.50 1.10 30 . 0% 29.0% 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 vou use? 6. Is the GSI offer a good one? (For requirements 1 to 4, round your answers to the nearest whole dollar amount.) 1. Market value of equity methood 2. Book value of equity method 3. Multiples-based method - Sales Multiples-based method Eanings Multiples-based method -Free cash flow 4. Discounted cash flow method 5. Which of the methods would you use? 6. Is the GSl offer a good one
