The Harrison Bicycle Company had the following operating results for 2021-2022. In addition, the company paid dividends in both 2021 and 2022 of $80,000 per year and made capital expenditures in both years of $230,000 per year. The company's stock price in 2021 was $14.20 and $12.50 in 2022. Also in 2022, the industry average earnings multiple for the bicycle industry was 8 and the free cash flow and sales multiples were 16 and 1.35, respectively. The company is publicly owned and has 1,400,000 shares of outstanding stock at the end of 2022. Balance Sheet, December 31, 20222021Cash$ 267,000$ 100,000Accounts Receivable$ 525,000$ 400,000Inventory$ 450,000$ 300,000Total Current Assets$ 1,242,000$ 800,000Long-lived Assets1,205,0001,100,000Total Assets$ 2,447,000$ 1,900,000Current Liabilities$ 500,000$ 300,000Long-term Debt600,000500,000Shareholder Equity1,347,0001,100,000Total Debt and Equity$ 2,447,000$ 1,900,000 Income Statement, for year ended December 31, 20222021Sales$ 6,250,000$ 5,450,000Cost of Sales5,125,0004,400,000Gross Margin1,125,0001,050,000Operating Expenses580,000550,000Operating Income545,000500,000Taxes218,000200,000Net Income$ 327,000$ 300,000 Cash Flow From Operations20222021Net Income$ 327,000$ 300,000Plus Depreciation Expense125,000125,000+ Decrease (-increase) in Accounts Receivable and Inventory(275,000)0+ Increase (-decrease) in Current Liabilities200,0000Cash Flow from Operations$ 377,000$ 425,000 The value of the company, calculated using the free cash flow multiple for 2022 is: Multiple Choice $1,072,000 $1,347,000 $2,616,000 $2,520,00

Cash flow statement is very important as it gives company a clear picture about its cash…

Answered: The Harrison Bicycle Company had the…

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter11: The Statement Of Cash Flows

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The Harrison Bicycle Company had the following operating results for 2021-2022. In addition, the company paid dividends in both 2021 and 2022 of $80,000 per year and made capital expenditures in both years of $230,000 per year. The company's stock price in 2021 was $14.20 and $12.50 in 2022. Also in 2022, the industry average earnings multiple for the bicycle industry was 8 and the free cash flow and sales multiples were 16 and 1.35, respectively. The company is publicly owned and has 1,400,000 shares of outstanding stock at the end of 2022.

	2022	2021
Balance Sheet, December 31,
Cash	$ 267,000	$ 100,000
Accounts Receivable	$ 525,000	$ 400,000
Inventory	$ 450,000	$ 300,000
Total Current Assets	$ 1,242,000	$ 800,000
Long-lived Assets	1,205,000	1,100,000
Total Assets	$ 2,447,000	$ 1,900,000
Current Liabilities	$ 500,000	$ 300,000
Long-term Debt	600,000	500,000
Shareholder Equity	1,347,000	1,100,000
Total Debt and Equity	$ 2,447,000	$ 1,900,000

	2022	2021
Income Statement, for year ended December 31,
Sales	$ 6,250,000	$ 5,450,000
Cost of Sales	5,125,000	4,400,000
Gross Margin	1,125,000	1,050,000
Operating Expenses	580,000	550,000
Operating Income	545,000	500,000
Taxes	218,000	200,000
Net Income	$ 327,000	$ 300,000

Cash Flow From Operations	2022	2021
Net Income	$ 327,000	$ 300,000
Plus Depreciation Expense	125,000	125,000
+ Decrease (-increase) in Accounts Receivable and Inventory	(275,000)	0
+ Increase (-decrease) in Current Liabilities	200,000	0
Cash Flow from Operations	$ 377,000	$ 425,000

The value of the company, calculated using the free cash flow multiple for 2022 is:

Multiple Choice

$1,072,000
$1,347,000
$2,616,000
$2,520,00

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