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D G H I J. Clark Inc. (JCI), a manufacturer and distributer of sports equipment, has grown until it has become a stable, mature company. Now JCI is planning its first distribution to shareholders. Shown below are the most recent year's financial statements and projections for the next year, 2020 (JCI has a fiscal year ending on June 30). JCI plans to liquidate $500 million of its short-term securities and distribute them on July 1, 2020, the first day of the next fiscal year, but has not yet decided whether to distribute with dividends or with stock repurchases. Inputs Amount of distribution Tax rate $500 25% WACC 11.0% Number of shares 1,000 FCF constant growth rate 6.0% Actual Projected Income Statement (Millions of Dollars) Net Sales 6/30/2019 6/30/2020 $19,490 $20,658 Costs (except depreciation) Depreciation $16,000 $16,960 $1,300 $1,378 Earning before int. & tax Interest expense $2,190 $2,320 $150 $152 Earnings before taxes $2,040 $2,168 Taxes $510 $542 Net Income $1,530 $1,626 a. Assume first that JCI distributes the $500 million as dividends. Fill in the missing values in the balance sheet column for July 1, 2020, that is labeled "Distribute as Dividends." (Hint: Be sure that the balance sheets balance after you fill in the missing items. Also, assume JCI did not have to establish an account for dividends payable prior to the distribution.) See below for calculations. b. Now assume that JCI distributes the $500 million through stock repurchases. Fill in the missing values in the balance sheet column for July 1, 2020, that is labeled "Distribute as Repurchase." (Hint: Be sure that the balance sheets balance after you fill in the missing items.) Projected: Prior to Distribution Distribute as Distribute as Balance Sheets (Millions of Dollars) Assets Actual Dividend Repurchase 7/2/2020 6/30/2019 7/1/2020 Cash $160 $170 $170 $200 Short-term investments Accounts receivable Inventories $2,000 $2.120 42 120 6/30/2020 $170 $640 $2,120. 35 b. Now assume that JCI distributes the $500 million through stock repurchases. Fill in the missing values in the balance 36 sheet column for July 1, 2020, that is labeled "Distribute as Repurchase." (Hint: Be sure that the balance sheets balance after 37 you fill in the missing items.) 38 39 40 Projected: Prior to Distribution Distribute as Distribute as 41 Balance Sheets (Millions of Dollars) Actual Dividend Repurchase 42 Assets 6/30/2019 7/1/2020 43 Cash $160 712/2020 $170 $170 44 Short-term investments $200 45 Accounts receivable $2,000 $2,120 $2,120 46 Inventories $3,000 $3,180 $3,180 47 Total current assets $5,360 $5,470 $5,470 48 Net plant and equipment $13,000 $13,780 $13,780 49 Total assets $18,360 $19,250 $19,250 50 Liabilities & Equity 51 Accounts payable $1,000 $1,060 $1,060 52 Accruals $2,000 $2,120 $2,120 53 Short-term debt $400 $124 $124 54 Total current liabilities $3,400 $3,304 $3,304 55 Long-term debt $2,070 $2.070 $2,070 56 Total liabilities $5,470 $5,374 $5,374 57 Common stock $5,850 $5,850 $5,850 58 Treasury stock 59 Retained earnings 60 $5,850 $5,850 61 $11,224 $11,224 NOT NOT 62 63 Check for balance: BALANCED! $8,026.0 BALANCED! $8,026,0 64 25 Total common equity Total liabilities & equity ($400) $7.440 $12,890 $18,360 $0.0 6/30/2020 $170 $640 $2,120 $3,180 $6,110 $13,780 $19,890 $1,060 $2,120 $124 $3,304 $2,070 $5,374 $5,850 ($400) $9,066 $14,516 $19,890 $0.0 c. Caculate JCT's projected free cash flow, the tax rate is 25%. Calculation of Free Cash Flow 6/30/2019 Operating current assets Operating current liabilities Net operating working capital Net plant & equipment Total net operating capital $15,160.00 Net operating profit after taxes Inv. in operating capital Free cash flow (FCF) c. Caculate JCP's horizon value for 6/30/2020. FCF is expected to grow at a constant rate of 6% and JCI's WACC is 11%. Calculate JCI's value of operations for 6/30/2019 and 6/30/2020. (Hint: JCI's value of operations on 6/30/2020 is equal to the horizon value.) Valuation 6/30/2019 6/30/2020 Horizon value Value of operations 6 d. What is JC's current intrinsic stock price (the price on 6/30/2019)? What is the projected intrinsic stock price for 7 6/30/2020? See below for 8 calculations. 9e. What is the projected intrinsic stock price on 7/1/2020 if JCT distributes the cash as dividends? See below for 0 calculations. Projected 6/30/2020 d. What is JCT's current intrinsic stock price (the price on 6/30/2019)? What is the projected intrinsic stock price for 6/30/2020? See below for calculations. e. What is the projected intrinsic stock price on 7/1/2020 if JCI distributes the cash as dividends? See below for calculations. 1. What is the projected intrinsic stock price on 7/1/2020 if JCI distributes the cash athrough stock repurchases? How many shares will remain outstanding after the repurchase? See below for calculations. Distribute as Dividend 7/1/2020 Distribute as Repurchase 7/1/2020 6/30/2019 6/30/2020 Value of operations +Value of nonoperating assets Total intrinsic value of firm -Debt Intrinsic value of equity +Number of shares Intrinsic price per share D G H I J. Clark Inc. (JCI), a manufacturer and distributer of sports equipment, has grown until it has become a stable, mature company. Now JCI is planning its first distribution to shareholders. Shown below are the most recent year's financial statements and projections for the next year, 2020 (JCI has a fiscal year ending on June 30). JCI plans to liquidate $500 million of its short-term securities and distribute them on July 1, 2020, the first day of the next fiscal year, but has not yet decided whether to distribute with dividends or with stock repurchases. Inputs Amount of distribution Tax rate $500 25% WACC 11.0% Number of shares 1,000 FCF constant growth rate 6.0% Actual Projected Income Statement (Millions of Dollars) Net Sales 6/30/2019 6/30/2020 $19,490 $20,658 Costs (except depreciation) Depreciation $16,000 $16,960 $1,300 $1,378 Earning before int. & tax Interest expense $2,190 $2,320 $150 $152 Earnings before taxes $2,040 $2,168 Taxes $510 $542 Net Income $1,530 $1,626 a. Assume first that JCI distributes the $500 million as dividends. Fill in the missing values in the balance sheet column for July 1, 2020, that is labeled "Distribute as Dividends." (Hint: Be sure that the balance sheets balance after you fill in the missing items. Also, assume JCI did not have to establish an account for dividends payable prior to the distribution.) See below for calculations. b. Now assume that JCI distributes the $500 million through stock repurchases. Fill in the missing values in the balance sheet column for July 1, 2020, that is labeled "Distribute as Repurchase." (Hint: Be sure that the balance sheets balance after you fill in the missing items.) Projected: Prior to Distribution Distribute as Distribute as Balance Sheets (Millions of Dollars) Assets Actual Dividend Repurchase 7/2/2020 6/30/2019 7/1/2020 Cash $160 $170 $170 $200 Short-term investments Accounts receivable Inventories $2,000 $2.120 42 120 6/30/2020 $170 $640 $2,120. 35 b. Now assume that JCI distributes the $500 million through stock repurchases. Fill in the missing values in the balance 36 sheet column for July 1, 2020, that is labeled "Distribute as Repurchase." (Hint: Be sure that the balance sheets balance after 37 you fill in the missing items.) 38 39 40 Projected: Prior to Distribution Distribute as Distribute as 41 Balance Sheets (Millions of Dollars) Actual Dividend Repurchase 42 Assets 6/30/2019 7/1/2020 43 Cash $160 712/2020 $170 $170 44 Short-term investments $200 45 Accounts receivable $2,000 $2,120 $2,120 46 Inventories $3,000 $3,180 $3,180 47 Total current assets $5,360 $5,470 $5,470 48 Net plant and equipment $13,000 $13,780 $13,780 49 Total assets $18,360 $19,250 $19,250 50 Liabilities & Equity 51 Accounts payable $1,000 $1,060 $1,060 52 Accruals $2,000 $2,120 $2,120 53 Short-term debt $400 $124 $124 54 Total current liabilities $3,400 $3,304 $3,304 55 Long-term debt $2,070 $2.070 $2,070 56 Total liabilities $5,470 $5,374 $5,374 57 Common stock $5,850 $5,850 $5,850 58 Treasury stock 59 Retained earnings 60 $5,850 $5,850 61 $11,224 $11,224 NOT NOT 62 63 Check for balance: BALANCED! $8,026.0 BALANCED! $8,026,0 64 25 Total common equity Total liabilities & equity ($400) $7.440 $12,890 $18,360 $0.0 6/30/2020 $170 $640 $2,120 $3,180 $6,110 $13,780 $19,890 $1,060 $2,120 $124 $3,304 $2,070 $5,374 $5,850 ($400) $9,066 $14,516 $19,890 $0.0 c. Caculate JCT's projected free cash flow, the tax rate is 25%. Calculation of Free Cash Flow 6/30/2019 Operating current assets Operating current liabilities Net operating working capital Net plant & equipment Total net operating capital $15,160.00 Net operating profit after taxes Inv. in operating capital Free cash flow (FCF) c. Caculate JCP's horizon value for 6/30/2020. FCF is expected to grow at a constant rate of 6% and JCI's WACC is 11%. Calculate JCI's value of operations for 6/30/2019 and 6/30/2020. (Hint: JCI's value of operations on 6/30/2020 is equal to the horizon value.) Valuation 6/30/2019 6/30/2020 Horizon value Value of operations 6 d. What is JC's current intrinsic stock price (the price on 6/30/2019)? What is the projected intrinsic stock price for 7 6/30/2020? See below for 8 calculations. 9e. What is the projected intrinsic stock price on 7/1/2020 if JCT distributes the cash as dividends? See below for 0 calculations. Projected 6/30/2020 d. What is JCT's current intrinsic stock price (the price on 6/30/2019)? What is the projected intrinsic stock price for 6/30/2020? See below for calculations. e. What is the projected intrinsic stock price on 7/1/2020 if JCI distributes the cash as dividends? See below for calculations. 1. What is the projected intrinsic stock price on 7/1/2020 if JCI distributes the cash athrough stock repurchases? How many shares will remain outstanding after the repurchase? See below for calculations. Distribute as Dividend 7/1/2020 Distribute as Repurchase 7/1/2020 6/30/2019 6/30/2020 Value of operations +Value of nonoperating assets Total intrinsic value of firm -Debt Intrinsic value of equity +Number of shares Intrinsic price per share

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