Davidson Yachts is a small company founded by two businesspeople who are friends and avid sailors. At present, they are interested in expanding the business and have asked you to review its financial statements. Davidson Yachts sells approximately 200 to 250 sailboats each year, ranging from 15-foot dinghies to 21-foot sailboats. Their sales prices renge from $3,100 to more than $11,100. The company has a limited inventory of boats consisting primarily of one or two boots from each of the four manufacturers that supply Davidson. The company also sells o voriety of supplies and parts and performs different types of service. Most sales are on credit. The company operates from a large building that has offices, storage, and sales space for some of the smaller sailboats. The larger sailbosts are kept in a fenced eres adjacent to the main building, and an emple parking area is nesrby. This year, Davidson purchased a boat lift to haul bosts. The lift hos brought in revenues for boat repairs, hull pointing, and related services, as well as the boat houls. The balance sheet and income statement for Davidson Yechts for 2014-2019 follow. The incresse in net fixed assets in the recent 2 years is due to improvements in the building, paving of the parking area and the purchase of the lift. DAVIDSON YACHTS COMPANY Comparative Balance Sheet December 31 2014 2015 2016 2017 2018 2019 Cash $ 24,360 $ 23,666 $ 19,835 $ 29,526 $ 44,792 $ 32,364 Accounts receivable 100,565 184,844 114,223 127,293 105,488 145,189 Allowance for bad debts (9,894) (10,436) (9.374) (11,816) (7,832) (13,686) Inventory 36,109 57,994 63,112 69,314 68,094 97.984 Other current assets 12.994 14,124 10.344 12,436 28,023 24.113 Total current assets $164,174 $183,772 $ 199,140 $ 226,553 $ 222,565 $ 285,964 Property and equipment 263, 295 283,188 300,480 369,665 406,369 499,726 Accumulated depreciation (67.284) (94,542) (123.992) (159.199) (188,327) (228,487) Total assets $360,385 $377,338 $ 374,628 $ 437,019 $ 440,627 $ 557,283 Accounts payable $ 83,735 $ 79,337 $ 64,666 57.686 41,289 $ 51,754 Taxes payable 12,738 12,683 12,888 15,183 4,838 17,232 Short-term loans 62,976 58,080 39,683 42,193 5e, 694 78,262 Accrued payroll payable 6,327 5,698 4,749 5,324 5,874 6,379 Total current liabilities $163.768 $155, 198 $ 120,978 $ 120,386 $ 192,695 $ 153,427 Long term debt 159,273 173,488 188,590 216,097 230,571 263, 358 Equity 37, 344 48,652 73,260 180,536 187,341 148,498 Total liabilities and equity $360,385 $377, 338 $ 374,628 $ 437,819 $ 440,627 $ 557,283 $ $ DAVIDSON YACHTS COMPANY Comparative Statenent of Income and Operating Cash Flow For the Years Ended December 31 2014 2015 2016 Sales $773,asa $730,378 $782,988 Returns and allowances 39,479 36,745 41,434 Cost of sales 477.288 444,598 461,315 Gross margin $256, 393 $249,035 $280, 231 Depreciation expense $ 29,185 $ 27,568 $ 29,568 Interest expense 18,787 19,667 21,188 Salaries and wages 82,633 73,774 77.956 Accounting and legal 9,854 18,436 Administration expense 79.776 75,344 88,03 Other expense 12,748 19,037 15,873 Total expense $232,295 $225, 226 $234,733 Net incone $ 24,098 $ 23,209 $ 45,498 Cash flow from operations (adjustments to net income) Depreciation $ 27,568 $ 29,560 Decrease (increase) in receivables (2,897) (11,241) Decrease (increase) in inventory (21,885) (5,118) Decrease (increase) in other current assets (1,110) 3.760 Increase (decrease) in current liabilities (8,570) (34,228) $ 16,315 $ 28, 239 2017 $934,978 47,298 549,878 $338,982 $ 35, 317 21,585 95,874 11.944 96,579 23,013 $284,312 $ 54, 490 2018 772,118 33,987 456.969 $279,154 $ 29,238 24.999 93,013 13,218 88,185 19,844 $267,617 $ 11,537 2019 954, 357 48,480 533,897 $371,990 $ 40, 190 29,183 101.557 11,490 97,551 22,772 $382,663 $ 69,317 $ 35, 317 $ 29,238 (18,428) 17,621 (6,202) 9,220 (2,092) (7.587) (592) (17,691) $ 70,493 $ 42,338 $ 40, 190 (33,847) (37,890) (4.090 se,732 $ 84,412 The company obtains its debt financing from two sources: (1) a small savings and loan for its short-term funds and (2) larger commercial bank, also for short-term loans, but principally for long-term financing. The terms of the loan agreement with the bank include a restriction that Davidson's current ratio must remain higher than 1.5. Required: 1. What is the valuation of Davidson Yachts Company using the book value of equity method? 2. What is the valuation of Davidson Yachts Company using the multiples-based method on earnings? Assume the industry everage earnings multiple is 7. Use the median value of the most recent 3 years for earnings 3. What is the valuation of Davidson Yachts Company using the multiples-based method on operating cash flowAssume the industry average multiple on operating cash flow is 5. Use the median value of the most recent 3 years for cash flow