MarineCo has no debt but does have unfunded pension liabilities valued at $200 million, recorded as a long-term other liability. MarineCo has detailed in its annual report a potential legal judgment of $100 million for defective engines. Since management estimates a 90 percent likelihood the judgment will be enforced against the engine maker and not MarineCo, it has not reported a liability on the balance sheet. The company’s marginal tax rate is 30 percent. Based on this information and information provided in Question below (assuming no sale of the subsidiary), what is MarineCo’s equity value? MarineCo manufactures, markets, and distributes recreational motorboats. Using discounted free-cash-flow analysis, you value the company’s operations at $2,500 million. The company has a 20 percent stake in a nonconsolidated subsidiary valued at $500 million. The investment is recorded on MarineCo’s balance sheet as an equity investment of $50 million. MarineCo is looking to increase its ownership. The company’s marginal tax rate is 30 percent. Based on this information, what is MarineCo’s enterprise value? If new management announced its plan to sell the company’s stake in the subsidiary at its current value, how would that change your valuation?

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter6: Accounting Quality

Section: Chapter Questions

Problem 20PC

See similar textbooks

Related questions

Question

MarineCo has no debt but does have unfunded pension liabilities valued at $200 million, recorded as a long-term other liability. MarineCo has detailed in its annual report a potential legal judgment of $100 million for defective engines. Since management estimates a 90 percent likelihood the judgment will be enforced against the engine maker and not MarineCo, it has not reported a liability on the balance sheet. The company’s marginal tax rate is 30 percent. Based on this information and information provided in Question below (assuming no sale of the subsidiary), what is MarineCo’s equity value?

MarineCo manufactures, markets, and distributes recreational motorboats. Using discounted free-cash-flow analysis, you value the company’s operations at $2,500 million. The company has a 20 percent stake in a nonconsolidated subsidiary valued at $500 million. The investment is recorded on MarineCo’s balance sheet as an equity investment of $50 million. MarineCo is looking to increase its ownership. The company’s marginal tax rate is 30 percent. Based on this information, what is MarineCo’s enterprise value? If new management announced its plan to sell the company’s stake in the subsidiary at its current value, how would that change your valuation?

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.