New Stock IssueBynum and Crumpton, a small jewelry manufacturer, has been success ful and has enjoyed a positive growth trend Now B C is planning to go public with an issue of common stock, and it faces the problem of setting an appropriate price for the stock The company and its investment banks believe that the proper procedure is to conduct a valuation and select sev eral similar firms with publicly traded common stock and to make relevant comparisons Several jewelry manufacturers are reasonably similar to B C with respect to product mix, asset composition, and debt equity proportions Of these companies, Abercrombie Jewelers and Gunter Fashions are most simi lar When analyzing the following data, assume that the most recent year has been reasonably normal in the sense that it was neither especially good nor especially bad in terms of sales, earnings, and free cash flows Abercrombe is listed on the AMEX and Gunter on the NYSE, while B C will be traded in the NASDAQ market Company DataAbercrombeGunterB C B C is a closely held corporation with 500,000 shares outstand ing Free cash flows have been low and in some years negative due to B Cs recent high sales growth rates, but as its expansion phase comes to an end, B Cs free cash flows should increase B C antici pates the following free cash flows over the next 5 years Year FCF 1 $1,000,000 2 $1,050,000 3 $1,208,000 4 $1,329,000 $5 1,462,000 After Year 5, free cash flow growth will be stable at 7 per year Currently, B C has no non operating assets, and its WACC is 12 Using the free cash flow valuation model (see Chapters 8 and 9), estimate the (1) horizon value, (2) intrinsic value of operations, (3) intrinsic value of equity, and (4) intrinsic per share price B Calculate debt to total assets, P E, market to book, P FCF, and ROE for Abercrombe, Gunter, and B C For calculations that require a price for B C, use the per share price you obtained with the corporate valua tion model in part a C Using Abercrombes and Gunters P E, Market Book, and Price FCF ratios, calculate the range of prices for B Cs stock that would be con sistent with these ratios For example, if you multiply B Cs earnings per share by Abercrombes P E ratio you get a price What range of prices do you get How does this compare with the price you get using the corporate valuation model

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New Stock IssueBynum and Crumpton, a small jewelry manufacturer, has been success-ful and has enjoyed a positive growth trend. Now B&C is planning to go

New Stock IssueBynum and Crumpton, a small jewelry manufacturer, has been success-ful and has enjoyed a positive growth trend. Now B&C is planning to go public with an issue of common stock, and it faces the problem of setting an appropriate price for the stock. The company and its investment banks believe that the proper procedure is to conduct a valuation and select sev-eral similar firms with publicly traded common stock and to make relevant comparisons.Several jewelry manufacturers are reasonably similar to B&C with respect to product mix, asset composition, and debt/equity proportions. Of these companies, Abercrombie Jewelers and Gunter Fashions are most simi-lar. When analyzing the following data, assume that the most recent year has been reasonably normal in the sense that it was neither especially good nor especially bad in terms of sales, earnings, and free cash flows. Abercrombe is listed on the AMEX and Gunter on the NYSE, while B&C will be traded in the NASDAQ market.Company DataAbercrombeGunterB&C

B&C is a closely held corporation with 500,000 shares outstand-ing. Free cash flows have been low and in some years negative due to B&Cs recent high sales growth rates, but as its expansion phase comes to an end, B&Cs free cash flows should increase. B&C antici-pates the following free cash flows over the next 5 years:

Year FCF

1 $1,000,000 2. $1,050,000 3.$1,208,000 4. $1,329,000 $5. 1,462,000

After Year 5, free cash flow growth will be stable at 7% per year. Currently, B&C has no non operating assets, and its WACC is 12%. Using the free cash flow valuation model (see Chapters 8 and 9), estimate the (1) horizon value, (2) intrinsic value of operations, (3) intrinsic value of equity, and (4) intrinsic per share price.

B.Calculate debt to total assets, P/E, market to book, P/FCF, and ROE for Abercrombe, Gunter, and B&C. For calculations that require a price for B&C, use the per share price you obtained with the corporate valua-tion model in part a.

C.Using Abercrombes and Gunters P/E, Market/Book, and Price/FCF ratios, calculate the range of prices for B&Cs stock that would be con-sistent with these ratios. For example, if you multiply B&Cs earnings per share by Abercrombes P/E ratio you get a price. What range of prices do you get? How does this compare with the price you get using the corporate valuation model?