Chapter 01: Intercorporate Investments

8) What would BV's 1988 earnings per share be after all of the above adjustments?

1. Describe the impact the three proposed accounting methods (full revenue recognition, deferral of revenue, and partial revenue recognition) would have on the company’s financial statements: 1) at the time of the sale, and 2) in future periods.

b.What are the amounts and timing of the acquisition investment’s free cash flow from 2013 through 2022?

13. Use the following data to determine the total dollar amount of assets to be classified as property, plant, and equipment. Eddy Auto Supplies Balance Sheet December 31, 2014 Cash $84,000 Accounts payable $110,000 Accounts receivable $80,000 Salaries and wages payable $20,000 Inventory $140,000 Mortgage payable $180,000 Prepaid insurance $60,000 Total liabilities $310,000 Stock investments $170,000 Land $190,000 Buildings $226,000 Common stock $240,000 Less: Accumulated Retained earnings $500,000 depreciation ($40,000) $186,000 Total

Middlesex Plastics Manufacturing had 2011 Net Income of $15.0 Million. Its 2012 Net Income is forecast to increase by 8%. The company’s capital structure has been 35% Debt and 65% Equity since 2010, and the company plans to maintain this capital structure in 2012. The company paid $3.0 Million cash dividends in 2011. The company is planning to invest in a major capital project in 2012. The capital budget for this project is $12.0 Million in 2012.

ii. What percentage of the total (gross) assets acquired in the NDS acquisition (excluding liabilities assumed) are comprised of goodwill and other intangibles?

9. You want to purchase a business with the following cash flows. How much would you pay for this business today assuming you needed a 14% return to make this deal?

d) Calculate the new value per share after the capital structure change. (Hint: use your answers to parts b and c.)

1. As of December 31, 2011, what amount, if any, of sales due should be recognized in eVade’s financial statements?

Market value per share = Book value per share = $12,000 / 750 shares = $16 per share

Shareholder’s equity would be lower than that shown in 1982 ($318,000) because the company has to pay off interest and principal for many loans. There will be little money left for shareholder’s equity.

Answer: A firm has two choices with its free cash flow. It can decide to

b) When assuming that Ms. Zhang’s estimates for synergies are accurate we can compute a new unlevered free cash flow looking like this:

Analysts estimate that the $80 million in cost saving could be realized after the acquisition , however certain other costs associated with the integration approximately $130 million would occur .Hence, I take these cost savings and integration costs into consideration for the with-synergies valuation. Incorporating the effects of 80million cost savings for the merged firm (to be achieved by end of 2007 and assumed to incur in perpetuity then on) and 130 million integration costs (half of this accounted at the beginning years) in the estimated EBITs for Torrington, a new horizon value is estimated, the new FCF is discounted by acquiring company’s WACC 8.39%. Torrington company’s with- synergies valuation $1386.38 million exceeds the value as a stand-alone entity by approximately $286 million. sheet2: With-synergies Valuation of Torrington-DCF Method.

(Note: retained earnings information is irrelevant here) Part b. Total market value = debt + pref. equity + Common equity = 1,147,200 + 1,250,000 + 2,500,000 = $4,897,200