Question
Hi I m stuck on this question from 3 days, please help. An analyst is trying to value Jasons Specialties (JS) stock. The analyst has
Hi I m stuck on this question from 3 days, please help.
An analyst is trying to value Jasons Specialties (JS) stock. The analyst has collected data from the company and other sources to prepare the below financials, both actual and projected. Based upon these sources, the analyst expects the companys free cash flows to grow at 4% on average. The analyst has estimated the companys cost of capital (WACC) to be 16% and its cost of equity to be 21%. The risk-free rate is 2.3%..
- Which items listed under Current Assets and Current Liabilities are typically excluded from NOWC? What is JSs NOWC in years 2019 and 2020?
- Compute the firms FCF (free cash flow) for year 2020.
- Find the value of the firm using DCF method and price per share assuming that there are 12,000,000 shares issued and outstanding.
- Find the value of the firm using ECF method and price per share assuming that there are 12,000,000 shares issued and outstanding
- What is the External Financing Needed for year 2020? Explain your calculation
- Suppose that the firm's probability of bankruptcy is estimated to be 5% and the economic loss associated with bankruptcy is likely to amount to $55,000,000. What valuation method would allow you to take this into account? Describe briefly how you would implement it (you do not have enough information to actually do the calculations, so no need to try).
Income statement for the fiscal year ending January 1 (Millions of dollars)
| 2019 (Actual) | 2020 (Projected) | ||
| Net Sales | $400.0 | $430.0 | |
| Costs | 260.0 | 283.5 | |
| Depreciation | 37.5 | 42.5 | |
| Earnings before interest and taxes | 102.5 | 104.0 | |
| Interest expense | 14.1 | 16.0 | |
| Earnings before taxes | 88.4 | 89.9 | |
| Taxes (40%) | 35.36 | 35.2 | |
| Net income before preferred dividends | 53.04 | 52.8 | |
| Preferred dividends | 6.0 | 6.5 | |
| Net income | 47.04 | 46.3 | |
| Common dividends | 37.632 | 38.2 | |
| Addition to retained earnings | 9.0408 | 8.1 | |
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Balance sheets for the fiscal year ending January 1 (Millions of dollars)
| 2019 (Actual) | 2020 (Projected) | ||
| Cash | $6.3 | $3.6 | |
| Marketable Securities | 40.9 | 39.128 | |
| Accounts Receivable | 62.0 | 67.0 | |
| Inventories | 107.0 | 105.5 | |
| Net plant & equipment | 391.0 | 415.36 | |
| Total Assets | 607.2 | 630.58 | |
| Accounts payable | 9.6 | 12.1 | |
| Accruals | 25.5 | 29.1 | |
| Long-term bonds | 210.7 | 217.78 | |
| Preferred Stock | 55 | 57.1 | |
| Common Stock (Par plus PIC) | 160.0 | 160.0 | |
| Retained earnings | 146.4 | 154.5 | |
| Total Liabilities & Equity | 607.2 | 630.58 | |
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