Egon Castle is a Biotechnology company. Egon Castle's 2019 income statement revealed sales of $1,400,000; EBITDA margin of 18%, interest expense of $22,000, and an effective tax rate of 24%. The increase in common stock and additional paid-in capital is due to issuing additional shares for cash. Comparative balance sheets for Egon Castle follow. 1. Prepare a statement of cash flows for Egon Castle Corp for the year ending December 31, 2019. See template on next page. 2. Now assume you are a private equity fimm and want to acquire Egon Castle for your portfolio. You are willing to pay a 50% premium over its market price, because they have encouraging clinical trials. What amount do you offer? 3. Calculate the goodwill that results on the books of the private equity company. Assume the 2019 balance sheet numbers represent FMV. 4. Now assume we take Egon public immediately with an offering price of $18 per share. The IPO will allow you to capture another 20% premium to our value. How many shares will be outstanding according to our prospectus? 5. Assuming that the Egon offers 20% of its outstanding shares in the IPO and all are sold. How much cash does the IPO net before fees? 2019 2018 (All Amounts in 000s) Assets Cash Accounts receivable Inventories Prepaids Land Building and equipment Less: Accumulated depreciation Total assets xox $ 470,000 180,000 70,000 240,000 280,000 12,000 250,000 250,000 1,500,000 1,300,000 (205,000) (175,000) Xox $ 2,208,300 xox $ 11,000 24,000 92,000 15,000 Liabilities Accounts payable Accrued liabilities Income taxes payable Stockholders' equity Common stock Paid in capital in excess of par Retained earnings Total liabilities and equity 610,000 990,000 640,000 $ 2,600,000 700,000 800,000 585,350 XXX Egon Castle Corp Statement of Cash Flows (Indirect Approach) For the year ending December 31, 2019 Cash flows from operating activities: Net income Add (deduct) noncash effects on operating income Depreciation expense Change in accounts receivable Change in inventory Change in prepaid insurance Change in accounts payable Change in accrued liabilities Change in income taxes payable Net cash provided by operating activities Cash flows from investing activities: Purchase of equipment Net cash used by investing activities Cash flows from financing activities: Proceeds from issuing stock Dividends on common Net cash provided by financing activities Net change in cash Cash balance at January 1, 2019 Cash balance at December 31, 2019 Egon Castle is a Biotechnology company. Egon Castle's 2019 income statement revealed sales of $1,400,000; EBITDA margin of 18%, interest expense of $22,000, and an effective tax rate of 24%. The increase in common stock and additional paid-in capital is due to issuing additional shares for cash. Comparative balance sheets for Egon Castle follow. 1. Prepare a statement of cash flows for Egon Castle Corp for the year ending December 31, 2019. See template on next page. 2. Now assume you are a private equity fimm and want to acquire Egon Castle for your portfolio. You are willing to pay a 50% premium over its market price, because they have encouraging clinical trials. What amount do you offer? 3. Calculate the goodwill that results on the books of the private equity company. Assume the 2019 balance sheet numbers represent FMV. 4. Now assume we take Egon public immediately with an offering price of $18 per share. The IPO will allow you to capture another 20% premium to our value. How many shares will be outstanding according to our prospectus? 5. Assuming that the Egon offers 20% of its outstanding shares in the IPO and all are sold. How much cash does the IPO net before fees? 2019 2018 (All Amounts in 000s) Assets Cash Accounts receivable Inventories Prepaids Land Building and equipment Less: Accumulated depreciation Total assets xox $ 470,000 180,000 70,000 240,000 280,000 12,000 250,000 250,000 1,500,000 1,300,000 (205,000) (175,000) Xox $ 2,208,300 xox $ 11,000 24,000 92,000 15,000 Liabilities Accounts payable Accrued liabilities Income taxes payable Stockholders' equity Common stock Paid in capital in excess of par Retained earnings Total liabilities and equity 610,000 990,000 640,000 $ 2,600,000 700,000 800,000 585,350 XXX Egon Castle Corp Statement of Cash Flows (Indirect Approach) For the year ending December 31, 2019 Cash flows from operating activities: Net income Add (deduct) noncash effects on operating income Depreciation expense Change in accounts receivable Change in inventory Change in prepaid insurance Change in accounts payable Change in accrued liabilities Change in income taxes payable Net cash provided by operating activities Cash flows from investing activities: Purchase of equipment Net cash used by investing activities Cash flows from financing activities: Proceeds from issuing stock Dividends on common Net cash provided by financing activities Net change in cash Cash balance at January 1, 2019 Cash balance at December 31, 2019