Question
Please show formulas and calculations and not just results and numbers, and explain rationale for answers. You have the following information for Crown Inc. for
Please show formulas and calculations and not just results and numbers, and explain rationale for answers.
You have the following information for Crown Inc. for the current year (Y0). Assume there are 50M shares outstanding,
Income Statement (M$) | Y0 | Y1 |
Sales | 1400 | 1750 |
Cost of Goods Sold | 700 | 840 |
SG&A | 200 | 220 |
Depreciation | 100 | 100 |
Earnings Before Interest & Tax (EBIT) | 400 | 590 |
Interest Expense | 40 | 25 |
Earnings Before Tax | 360 | 565 |
Taxes (40%) | 144 | 226 |
Net Income | 216 | 339 |
Dividends | 100 | 100 |
Add to retained earnings | 239 | |
Balance Sheet (M$) | Y0 | Y1 |
Cash | 100 | 144 |
Accounts Receivable | 300 | 375 |
Inventories | 500 | 600 |
Current Assets | 900 | 1119 |
Gross PPE | 400 | 550 |
Accumulated Depn | 300 | 400 |
Net Fixed Assets | 100 | 150 |
TOTAL ASSETS | 1000 | 1269 |
Accruals | 25 | 25 |
Accounts Payable | 150 | 180 |
Notes Payable | 75 | 75 |
Current Liabilities | 250 | 280 |
Long Term Debt | 350 | 350 |
Common Stock | 100 | 100 |
Retained Earnings | 300 | 539 |
Total Liability & Equity | 1000 | 1269 |
1. Estimate the stock price for Crow Inc. using discounted cash flows.Assume Crown Inc. grows at 5% after year 1, the cost of capital is 15% and cash is a non-operating asset.You will need the free cash flow for year 1 and the horizon value as part of the solution.
2. Pacman Inc. has a forward P-E multiple of 4.5x.Use this to estimate the stock price for Crown.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started