Use the following information concerning Johnson Machine Tools Ltd in Parts a & b.

Johnson's income statement from the fiscal year that ended this past December is:

• Revenue $995
• Cost of sales 652
• Gross profit $343
• Selling, general, & administrative expenses 135
• Operating profit (EBIT) $208
• Interest expense 48
• Earnings before tax $160
• Tax 64
• Profit $ 96
• All dollar values are in millions. Depreciation and amortisation expenses last year were $42 million, and the company has $533 million of debt outstanding.

You are an analyst at a company that buys private companies, improves their operating performance, and sells them for a profit. Your boss has asked you to estimate the fair market value of the Johnson Machine Tools Ltd. Billy's Tools is a public company with business operations that are virtually identical to those at Johnson. The most recent income statement for Billy's Tools is as follows:

• Revenue $1,764
• Cost of sales 1,168
• Gross profit $ 596
• Selling, general, & administrative expenses 211
• Operating profit (EBIT)
• Interest expense 12
• Earnings before tax $ 373
• Tax 147
• Profit $ 226

$ 385

All dollar values are in millions. Billy's had depreciation and amortisation expenses of $71 million last year and 200 million shares and $600 million of debt outstanding as of the end of the year. Its share is currently trading at $12.25 per share.

• Part (a) Using the P/E multiple, what is the value of Johnson's shares? What is the total value of Johnson Machine Tools Ltd?
• Part (b) Using the enterprise (company) value/EBITDA multiple, what is the total value of Johnson Machine Tools Ltd? What is the value of Johnson's shares?
• Part (c) Why is the rate used to discount FCFC different from the rate used to discount FCFE?