Distributions as Dividends or Repurchases

Amount of distribution $$700$ million

a$.$ Filling in the missing values in the balance sheet column for July $1,2022,$ which is labeled "Distribute as Dividends,"

if JCI distributes its short$-$term securities as dividends; JCI did not have to establish an account for dividends payable

prior to the distribution

b$.$ Filling in the missing values in the balance sheet column for July $1,2022,$ which is labeled "Distribute as Repurchase,"

if JCI distributes its short$-$term securities through stock repurchases

Projecting JCI's Financial Statements

$($Millions of Dollars$)$

Actual Projected

Income Statements $6/30/216/30/22$

Net sales $$18,500\mathrm{.}00$ $$19,425\mathrm{.}00$

Costs $($except depreciation$)14,800\mathrm{.}0015,540\mathrm{.}00$

Depreciation $1,300\mathrm{.}001,365\mathrm{.}00$

EBIT $$2,400\mathrm{.}00$ $$2,520\mathrm{.}00$

Interest expense $150\mathrm{.}00137\mathrm{.}60$

EBT $$2,250\mathrm{.}00$ $$2,382\mathrm{.}40$

Taxes $562\mathrm{.}50595\mathrm{.}60$

Net income $$1,687\mathrm{.}50$ $$1,786\mathrm{.}80$

Actual Projected: Prior to Distribution Distribute as Dividend Distribute as Repurchase

Balance Sheets $6/30/216/30/227/1/20227/1/2022$

Assets

Cash $$180\mathrm{.}00$ $$189\mathrm{.}00$

Short$-$term investments $300\mathrm{.}00960\mathrm{.}00$

Accounts receivable $2,150\mathrm{.}002,257\mathrm{.}50$

Inventories $2,800\mathrm{.}002,940\mathrm{.}00$

Total current assets $$5,430\mathrm{.}00$ $$6,346\mathrm{.}50$

Net plant and equipment $13,000\mathrm{.}0013,650\mathrm{.}00$

Total assets $$18,430\mathrm{.}00$ $$19,996\mathrm{.}50$

Liabilities & Equity

Accounts payable $$950\mathrm{.}00$ $$997\mathrm{.}50$

Accruals $1,700\mathrm{.}001,785\mathrm{.}00$

Short$-$term debt $450\mathrm{.}000\mathrm{.}00$

Total current liabilities $$3,100\mathrm{.}00$ $$2,782\mathrm{.}50$

Long$-$term debt $1,944\mathrm{.}002,041\mathrm{.}20$

Total liabilities $$5,044\mathrm{.}00$ $$4,823\mathrm{.}70$

Common stock $6,084\mathrm{.}006,084\mathrm{.}00$

Treasury stock $-400\mathrm{.}00-400\mathrm{.}00$

Retained earnings $7,702\mathrm{.}009,488\mathrm{.}80$

Total common equity $$13,386\mathrm{.}00$ $$15,172\mathrm{.}80$

Total liabilities & equity $$18,430\mathrm{.}00$ $$19,996\mathrm{.}50$

$.$ Calculating JCI's projected free cash flow

Tax rate $25\%$

Actual Projected

$($Millions of Dollars$)6/30/216/30/22$

Operating current assets

Operating current liabilities

Net operating working capital

Net plant and equipment

Total net operating capital

Net operating profit after taxes

Investment in operating capital

Free cash flow $($FCF$)$

d$.$ Calculating JCI's current intrinsic stock price $($the price on $6/30/2021)$ and the projected intrinsic stock price for $6/30/2022$

e$.$ Calculating the projected intrinsic stock price on $7/1/2022$ if JCI distributes the cash as dividends

f$.$ Calculating the projected intrinsic stock price on $7/1/2022$ if JCI distributes the cash through stock repurchases and

the number of shares remaining outstanding after the repurchase

WACC $9\mathrm{.}0\%$

Number of shares $900$ million

FCF constant growth rate $5\mathrm{.}0\%$

Actual Projected

$($Millions of Dollars$)6/30/216/30/22$

Horizon value

Value of operations

Actual Projected Distribute as Dividend Distribute as Repurchase

$($in millions, except intrinsic stock price$)6/30/216/30/227/1/20227/1/2022$

Value of operations

$+$ Value of nonoperating assets

Total intrinsic value of firm

$-$ Debt

Intrinsic value of equity

$-$: Number of shares

Intrinsic price per shareDistributions as Dividends or Repurchases

Amount of distribution

$$700$ million

a$.$ Filling in the missing values in the balance sheet column for July $1,2022,$ which is labeled "Distribute as Dividends,"

if $JCl$ distributes its short$-$term securities as dividends; $JCl$ did not have to establish an account for dividends payable

prior to the distribution

b$.$ Filling in the missing values in the balance sheet column for July $1,2022,$ which is labeled "Distribute as Repurchase,"

if JCl distributes its short$-$term securities through stock repurchases

Projecting JCl$\text{'}$s Financial Statements

$($Millions of Dollars$)$

Income Statements

Net sales

Costs $($except depreciation$)$

Depreciation

EBIT

Interest expense

Liabilities & Equity

Accounts payable

Accruals

Short$-$term debt

Total current liabilities

Long$-$term debt

Total liabilities

Common stock

Treasury stock