Brooks Plumbing Products Incorporated $($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 Incorporated $($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 $$38$ cash per share for their stock, which is greater than the current stock price; the stock has traded at about $$35$ in recent months. Summary financial information about BPP follows.

BROOKS PLUMBING PRODUCTS INCORPORATED

Selected Financial Information

For the Years Ended December $31$

$202220212022$ Industry Average

Cash $ $79,919,778$ $ $3,456,227$

Accounts receivable $56,778,46587,294,771$

Inventory $39,665,41659,883,645$

Long$-$lived assets

Gross book value $167,278,377143,778,377$

Net book value $100,620,80995,887,302$

Replacement cost $170,587,409188,465,338$

Liquidation value $68,734,00267,335,209$

Current liabilities $119,045,766120,995,274$

Long$-$term debt $31,997,36437,885,302$

Shareholders$$ equity $125,941,33887,641,369$

Capital expenditures $23,500,00012,990,336$

Sales $667,534,771638,776,465$

Cost of sales $498,657,788477,491,001$

Operating expense$*102,667,355134,765,229$

Income tax rate $38\%38\%38\mathrm{.}0\%$

Depreciation expense $18,766,49315,664,254$

Dividends $2,750,0001,250,000$

Year$-$end stock price $ $35\mathrm{.}78$ $ $22\mathrm{.}99$

Number of outstanding shares $25,689,55422,763,554$

Sales multiplier $1\mathrm{.}40$

Free cash flow multiplier $8\mathrm{.}80$

Earnings multiplier $13\mathrm{.}50$

Cost of capital $5\mathrm{.}2\%5\mathrm{.}2\%$

Accounts receivable turnover $5\mathrm{.}50$

Inventory turnover $8\mathrm{.}60$

Current ratio $1\mathrm{.}90$

Quick ratio $1\mathrm{.}10$

Cash flow ratio $1\mathrm{.}40$

Free cash flow ratio $1\mathrm{.}10$

Gross margin percentage $33\mathrm{.}0\%$

Return on assets $($net book value$)19\mathrm{.}0\%$

Return on equity $28\mathrm{.}0\%$

Earnings per share $ $2\mathrm{.}33$

$*$Operating expense includes depreciation expense.

Required:

$1.$ What is the valuation of BPP $($for $2022)$ using the market value method?

$2.$ What is the valuation of BPP $($for $2022)$ using the book value method?

$3.$ What are the valuations of BPP $($for $2022)$ 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 $2022$ 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.$)$

$1.$ Market value of equity method

$2.$ 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?