Required information [The following information applies to the questions displayed below.) Davidson Yachts is a small company founded by two businesspeople who are friends and avid sailors. At present, they are interested in expanding the business and have asked you to review its financial statements. Davidson Yachts sells approximately 210 to 260 sailboats each year, ranging from 14-foot dinghies to 20-foot sailboats. Their sales prices range from $3,200 to more than $11,200. The company has a limited inventory of boats consisting primarily of one or two boats from each of the four manufacturers that supply Davidson. The company also sells a variety of supplies and parts and performs different types of service. Most sales are on credit. The company operates from a large building that has offices, storage, and sales space for some of the smaller sailboats. The larger sailboats are kept in a fenced area adjacent to the main building, and an ample parking area is nearby. This year, Davidson purchased a boat lift to haul boats. The lift has brought in revenues for boat repairs, hull painting, and related services, as well as the boat hauls. The balance sheet and income statement for Davidson Yachts for 2014-2019 follow. The increase in net fixed assets in the recent 2 years is due to improvements in the building, paving of the parking area, and the purchase of the lift Cash Accounts receivable Allowance for bad debts Inventory Other current assets Total current assets Property and equipment Accumulated depreciation Total assets Accounts payable Taxes payable Short-term loans Accrued payroll payable Total current liabilities Long-term debt Equity Total liabilities and equity DAVIDSON YACHTS COMPANY Comparative Balance Sheet December 31 2014 2015 2016 2017 $ 24,460 $ 23,166 $ 19,935 $ 29,626 100,665 104,154 114,343 127,223 (9,984) (10,586) (9,424) (11,866) 36,209 58,104 63,232 69,444 13,094 14,214 10,464 12,566 $164,524 $189,052 $ 198,550 $ 226,993 263,395 283,208 300,580 369,765 (67, 184) (94,642) (124,092) (159,299) $360,735 $377,618 $ 375,038 $ 437,459 $ 83,835 $ 79,447 $ 64,786 $ 57,816 12,830 12,183 12,980 15,283 61,076 58, 180 38,783 42,293 6,427 5,798 4,849 5, 424 $164, 168 $155,608 $ 121,398 $ 120,816 159, 373 173,588 180, 690 216, 197 37,194 48, 422 72,950 100,446 $360,735 $377,618 $ 375,038 $ 437,459 2018 $ 44,892 105,588 (7,882) 60, 194 20,123 $ 222,915 406,469 (188,427) $ 440,957 $ 41,389 4,938 50,794 5,974 $ 103,095 230,671 187,191 $ 440,957 2019 $ 32,464 145,209 |(13,706) 98,094 24,223 $ 286, 284 499,826 (228,507) $ 557,603 $ 51,864 | 17,332 78, 162 6,479 $ 153,837 263,458 140,308 $ 557,603 DAVIDSON YACHTS COMPANY Comparative Statement of Income and Operating Cash Flow For the Years Ended December 31 2014 2015 2016 2017 2018 2019 Sales $773,580 $730,878 $783, 480 $935, 478 770,610 954,857 Returns and allowances 39,579 36,845 41,534 47,198 34,087 48,580 Cost of sales 477,508 444,898 461,615 549,378 457, 269 534, 197 Gross margin $256,493 $249, 135 $280,331 $338,902 $279,254 $372, 080 Depreciation expense $ 29,195 $ 27,578 $ 29,570 $ 35,327 $ 29, 248 $ 40,200 Interest expense 18,717 19,677 21,118 21,595 25,009 29,113 Salaries and wages 82,643 73,784 77,966 95,884 93,023 101,567 Accounting and legal 9,904 10,586 9,443 11,954 13,228 11,500 Administration expense 79,786 75,354 80,813 96,589 88,115 97,561 Other expense 12,750 19,047 15,883 23,023 19,054 22, 782 Total expense $232,395 $226, 026 $234,793 $284,372 $267,677 $382,723 Net income $ 24,098 $ 23,109 $ 45,538 $ 54,530 $ 11,577 $ 69,357 Cash flow from operations (adjustments to net income) Depreciation $ 27,578 $ 29,578 $ 35, 327 $ 29, 248 $ 40,200 Decrease (increase) in receivables (2,807) (11,351) (10,438) 17,651 (33,797) Decrease increase in inventory (21,895) (5,128) 16,212) 9,250 (37,900) Decrease increase) in other current assets (1,120) 3,750 Increase (decrease) in current liabilities (2,102) (7,557) (4,100) (8,560) (34,210) (582) (17,721) 50, 742 $ 16,385 $ 28, 169 $ 70,523 $ 42, 448 84,502 than 15. Required: 1. What is the valuation of Davidson Yachts Company using the book value of equity method? 2. What is the valuation of Davidson Yachts Company using the multiples-based method on earnings? Assume the industry average earnings multiple is 7. Use the median value of the most recent 3 years for earnings. 3. What is the valuation of Davidson Yachts Company using the multiples-based method on operating cash flow? Assume the Industry average multiple on operating cash flow is 5. Use the median value of the most recent 3 years for cash flow. Valuation Valuation Method 1 Net book value of equity 2. Earnings multiple 3. Operating cash flow multiple