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Chapter 20 Assignment i Saved Check my work mode: This shows what is correct or incorrect for the work you have completed so far. It does not i Brooks Plumbing Products Inc. (BPP) manufactures plumbing fixtures and other home improvement products that are sold in Home Depot and Walmart as well as hardware stores. BPP has a solid reputation for providing value products, good quality, and a good price. The company has been approached by an investment banking firm representing a third company, Garden Specialties Inc. (GSI), that is interested in acquiring BPP. The acquiring firm (GSI) is a retailer of garden supplies, it sees the potential synergies of the combined firm and is willing to pay BPP shareholders $39 cash per share for their stock, which is greater than the current stock price; the stock has traded at about $35 in recent months. Summary financial information about BPP follows. 0.84 points BROOKS PLUMBING PRODUCTS INC. Selected Financial Information For the Years Ended December 31 2019 Industry Average 2019 $ 79,989,778 56,848,465 39,735,416 $ 2018 3,526, 227 8 7,371,771 59,960,645 Cash Accounts receivable Inventory Long-lived assets Gross book value Net book value Replacement cost Liquidation value Current liabilities Long-term debt Shareholders' equity Capital expenditures Sales Cost of sales Operating expense* Income tax rate Depreciation expense Dividends Year-end stock price Number of outstanding shares Sales multiplier Free cash flow multiplier Earnings multiplier 167,348,377 100,690,809 170,657,409 68,804,002 119, 115, 766 32,067,364 126,011,338 23,570,000 668,234,771 499,007,788 102,737,355 38% 18,836,493 2,820,000 36.48 26,389,554 143,848, 377 95,957,302 188,535,338 67,405,209 121,072,274 37,962,302 87,711,369 13,060,336 639,476,465 477,841,001 134,835, 229 38% 15,734,254 1,320,000 23.69 23,463,554 38.00% $ 1.50 8.80 13.70 Jaic ULLIPIICI 8.80 13.70 5.9% 5.9% Free cash flow multiplier Earnings multiplier Cost of capital Accounts receivable turnover Inventory turnover Current ratio Quick ratio Cash flow ratio Free cash flow ratio Gross margin percentage Return on assets (net book value) Return on equity Earnings per share 6.20 8.60 1.50 1.20 1.50 1.20 32.0% 19.0% 29.0% 2.30 $ *Operating expense includes depreciation expense. Required: 1. What is the valuation of BPP (for 2019) using the market value method? 2. What is the valuation of BPP (for 2019) using the book value method? 3. What are the valuations of BPP (for 2019) using the multiples-based methods for sales, earnings, and free cash flow? 4. What is the estimated value for BPP using the discounted free cash flow method, assuming that the 2019 amount of free cash flow continues indefinitely? 5. Which of the methods would you use? 6. Is the GSI offer a good one? (For requirements 1 to 4, round your answers to the nearest whole dollar amount.) (For requirements 1 to 4, round your answers to the nearest whole dollar amount.) Answer is not complete. $ $ $ $ 962,690,930 126,011,338 1,002,352,157 564,762,900 Market value of equity method Book value of equity method Multiples-based method - Sales Multiples-based method - Earnings Multiples-based method - Free cash flow Discounted cash flow method Which of the methods would you use? Is the GSI offer a good one? Chapter 20 Assignment i Saved Check my work mode: This shows what is correct or incorrect for the work you have completed so far. It does not i Brooks Plumbing Products Inc. (BPP) manufactures plumbing fixtures and other home improvement products that are sold in Home Depot and Walmart as well as hardware stores. BPP has a solid reputation for providing value products, good quality, and a good price. The company has been approached by an investment banking firm representing a third company, Garden Specialties Inc. (GSI), that is interested in acquiring BPP. The acquiring firm (GSI) is a retailer of garden supplies, it sees the potential synergies of the combined firm and is willing to pay BPP shareholders $39 cash per share for their stock, which is greater than the current stock price; the stock has traded at about $35 in recent months. Summary financial information about BPP follows. 0.84 points BROOKS PLUMBING PRODUCTS INC. Selected Financial Information For the Years Ended December 31 2019 Industry Average 2019 $ 79,989,778 56,848,465 39,735,416 $ 2018 3,526, 227 8 7,371,771 59,960,645 Cash Accounts receivable Inventory Long-lived assets Gross book value Net book value Replacement cost Liquidation value Current liabilities Long-term debt Shareholders' equity Capital expenditures Sales Cost of sales Operating expense* Income tax rate Depreciation expense Dividends Year-end stock price Number of outstanding shares Sales multiplier Free cash flow multiplier Earnings multiplier 167,348,377 100,690,809 170,657,409 68,804,002 119, 115, 766 32,067,364 126,011,338 23,570,000 668,234,771 499,007,788 102,737,355 38% 18,836,493 2,820,000 36.48 26,389,554 143,848, 377 95,957,302 188,535,338 67,405,209 121,072,274 37,962,302 87,711,369 13,060,336 639,476,465 477,841,001 134,835, 229 38% 15,734,254 1,320,000 23.69 23,463,554 38.00% $ 1.50 8.80 13.70 Jaic ULLIPIICI 8.80 13.70 5.9% 5.9% Free cash flow multiplier Earnings multiplier Cost of capital Accounts receivable turnover Inventory turnover Current ratio Quick ratio Cash flow ratio Free cash flow ratio Gross margin percentage Return on assets (net book value) Return on equity Earnings per share 6.20 8.60 1.50 1.20 1.50 1.20 32.0% 19.0% 29.0% 2.30 $ *Operating expense includes depreciation expense. Required: 1. What is the valuation of BPP (for 2019) using the market value method? 2. What is the valuation of BPP (for 2019) using the book value method? 3. What are the valuations of BPP (for 2019) using the multiples-based methods for sales, earnings, and free cash flow? 4. What is the estimated value for BPP using the discounted free cash flow method, assuming that the 2019 amount of free cash flow continues indefinitely? 5. Which of the methods would you use? 6. Is the GSI offer a good one? (For requirements 1 to 4, round your answers to the nearest whole dollar amount.) (For requirements 1 to 4, round your answers to the nearest whole dollar amount.) Answer is not complete. $ $ $ $ 962,690,930 126,011,338 1,002,352,157 564,762,900 Market value of equity method Book value of equity method Multiples-based method - Sales Multiples-based method - Earnings Multiples-based method - Free cash flow Discounted cash flow method Which of the methods would you use? Is the GSI offer a good one

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