The company has been approached by an investment banking firm representing a third company, Garden Specialties Inc. (GS), 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 S41 cash per share for their stock, which is greater than the current stock price, the stock has traded at about $34 in recent months. Summary financial Information about BPP follows. BROOKS PLUMBING PRODUCTS INC. Selected Financial Information For the Years Ended December 31 2019 Industry Average $ 2019 $ 80,009,778 56,868,465 19,255,416 2018 3,546,227 87,393,721 59,982,645 167,368,327 108,710, 809 170.677,409 68,824,02 119.135.766 32.887,364 226,031, 838 23,590,00 668.434,721 499,107, 788 102,757.355 Cash Accounts receivable Inventory Long-lived assets Gross book value Net book value Replacement cost Liquidation value Current liabilities Long-term debt Shareholdersequity 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 cost of capital Accounts receivable turnover Inventory turnover Current ratio Quick ratio Cash flow ratio Free cash flow ratio 143,868, 377 95,927,302 18.555.338 67.425,209 121.094,274 37,084,32 87.731, 369 13,080,336 539.676,465 477,941,01 134,855, 229 36% 15.254.254 1,340,000 23.89 23,663,554 16% 35.ee 18,856,493 2,840, 36.63 26,519,554 $ $ 1.30 3.6e 13.50 6.13 6.40 8.40 1.30 1.10 8.68 13.50 6.40 8.40 1.80 1. 1e 1.30 1.1e 35.00 18.ex 28.0% $ 2.35 Free cash low multiplier Earnings multiplier Cost of capital 6.1% 6.1% 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 "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.) 1. Market value of equity method 2. Book value of equity method 3. Multiples-based method - Sales Multiples-based method - Earings Multiples-based method - Free cash flow 4 Discounted cash flow method 5 Which of the methods would you use? Is the OST offer a good one? The company has been approached by an investment banking firm representing a third company, Garden Specialties Inc. (GS), 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 S41 cash per share for their stock, which is greater than the current stock price, the stock has traded at about $34 in recent months. Summary financial Information about BPP follows. BROOKS PLUMBING PRODUCTS INC. Selected Financial Information For the Years Ended December 31 2019 Industry Average $ 2019 $ 80,009,778 56,868,465 19,255,416 2018 3,546,227 87,393,721 59,982,645 167,368,327 108,710, 809 170.677,409 68,824,02 119.135.766 32.887,364 226,031, 838 23,590,00 668.434,721 499,107, 788 102,757.355 Cash Accounts receivable Inventory Long-lived assets Gross book value Net book value Replacement cost Liquidation value Current liabilities Long-term debt Shareholdersequity 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 cost of capital Accounts receivable turnover Inventory turnover Current ratio Quick ratio Cash flow ratio Free cash flow ratio 143,868, 377 95,927,302 18.555.338 67.425,209 121.094,274 37,084,32 87.731, 369 13,080,336 539.676,465 477,941,01 134,855, 229 36% 15.254.254 1,340,000 23.89 23,663,554 16% 35.ee 18,856,493 2,840, 36.63 26,519,554 $ $ 1.30 3.6e 13.50 6.13 6.40 8.40 1.30 1.10 8.68 13.50 6.40 8.40 1.80 1. 1e 1.30 1.1e 35.00 18.ex 28.0% $ 2.35 Free cash low multiplier Earnings multiplier Cost of capital 6.1% 6.1% 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 "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.) 1. Market value of equity method 2. Book value of equity method 3. Multiples-based method - Sales Multiples-based method - Earings Multiples-based method - Free cash flow 4 Discounted cash flow method 5 Which of the methods would you use? Is the OST offer a good one
