M3 You are assigned to determine a fair value forAdvBioTech (ABT) Corporation. You determinedthat market multiples approach would be the bestmethod to determine a fair value for this company.The total asset value of the company is 600 milliondollars and the liability is 400 million dollars. Thecompany has 25 million shares outstanding. ABTalso generated 400-million-dollar-revenue in thecurrent year. In a typical year, company's return onequity is 16 percent. You gathered the followingthree multiples from a close competitor of ABT. TheP/E (Price-Earnings) ratio is 48, Price to sales (P/S)is 4, and price to book (P/B) ratio is 6. Based oninformation given about ABT and its competitor,determine the value of ABT using market multiplesapproach. Based on your analysis, what is the fairvalue of ABT using P/S multiple?

Market multiples approach It is a valuation method based on the assumption that similar firms have…

Answered: You are assigned to determine a fair…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter10: Decentralization: Responsibility Accounting, Performance Evaluation, And Transfer Pricing

Section: Chapter Questions

Problem 19E

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Macon Mills is a division of Bolin Products. Inc. During the most recent year, Macon had a net income of $40 million. Included in the income was interest expense of $2,800,000. The companys tax rate was 40%. Total assets were $470 million, current liabilities were $104,000,000, and $72,000,000 of the current liabilities are noninterest bearing. What are the invested capital and ROI for Macon?
You are assigned to determine a fair value for AdvBioTech (ABT) Corporation. You determined that market multiples approach would be the best method to determine a fair value for this company. The total asset value of the company is 800 million dollars and the liability is 500 million dollars. The company has 20 million shares outstanding. ABT also generated 500-million-dollar-revenue in the current year. In a typical year, company's return on equity is 20 percent. You gathered the following three multiples from a close competitor of ABT. The P/E (Price-Earnings) ratio is 25, Price to sales (P/S) is 3, and price to book (P/B) ratio is 4. Based on information given about ABT and its competitor, determine the value of ABT using market multiples approach. Based on your analysis, what is the fair value of ABT using P/E multiple?
As a long-term investment at the beginning of the fiscal year, Florists International purchased 30% of Nursery Supplies Inc.’s 8 million shares for $56 million. The fair value and book value of the shares were the same at that time. The company realizes that this investment typically would be accounted for under the equity method, but instead chooses the fair value option. During the year, Nursery Supplies earned net income of $40 million and distributed cash dividends of $1.25 per share. At the end of the year, the fair value of the shares is $52 million. Required: 1. Would this investment be classified on Florists’ balance sheet as held-to-maturity securities, trading securities, available-for-sale securities, significant-influence investments, or other? Explain. 2. Prepare all appropriate journal entries related to the investment during 2016. 3. Indicate the effect of this investment on 2016 income before taxes.
Conroy Financial paid $530,000 for a 20% investment in the common stock ofMaverick, Inc. For the first year, Maverick reported net income of $270,000, and at year-enddeclared and paid cash dividends of $115,000. On the balance-sheet date, the fair value of Conroy’s investment in Maverick stock was $410,000.Requirements1. Which method is appropriate for Conroy to use in its accounting for its investment inMaverick? Why?2. Show everything that Conroy would report for the investment and any investment revenuein its year-end financial statements.
[The following information applies to the questions displayed below.]As a long-term investment, Painters' Equipment Company purchased 20% of AMC Supplies Inc.'s 520,000 shares for $600,000 at the beginning of the fiscal year of both companies. On the purchase date, the fair value and book value of AMC’s net assets were equal. During the year, AMC earned net income of $370,000 and distributed cash dividends of 25 cents per share. At year-end, the fair value of the shares is $637,000. Required:1. Assume no significant influence was acquired. Prepare the appropriate journal entries from the purchase through the end of the year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) a)Record the purchase of AMC Supplies shares for $600,000 as a long-term investment. b)Record Painters' Equipment's share of AMC Supplies' $370,000 net income. c) Record the cash dividend of 25 cents per share. d)Record any necessary year-end…
During 20X1, Blue Corporation sold products for $2,500,000 (gross amount) with the sales returns and allowances of $50,000. The company incurred selling expenses for $120,000 and administrative expenses for $330,000. During the year, the company purchased 23,000 common shares of Francis Corporation at $8 per share and recorded the FV-NI investments, and purchased 18,000 shares of Davis Corporation at $12 per share and recorded the FV-OCI investments. On December 31, 20X1, the share prices of Francis Corporation and Davis Corporation were $11 per share and $10 per share, respectively. The company recognized interest expense for $62,000. The beginning-of-year balance of inventory was $640,000 and the end-of-year balance of inventory was $590,000. During the year, the company purchased inventory for $1,600,000. On September 1, 20X1, the company discontinued operation of a division that had a loss of $150,000 for its operation in 20X1. The discontinued division had the carrying value…
On January 4, 2024, Runyan Bakery paid $346 million for 10 million shares of Lavery Labeling Company common stock. The investment represents a 30% interest in the net assets of Lavery and gave Runyan the ability to exercise significant influence over Lavery's operations. Runyan chose the fair value option to account for this investment. Runyan received dividends of $2.80 per share on December 15, 2024, and Lavery reported net income of $260 million for the year ended December 31, 2024. The market value of Lavery's common stock at December 31, 2024, was $32 per share. On the purchase date, the book value of Lavery’s identifiable net assets was $910 million and: The fair value of Lavery's depreciable assets, with an average remaining useful life of six years, exceeded their book value by $60 million. The remainder of the excess of the cost of the investment over the book value of net assets purchased was attributable to goodwill. Required: Assuming Runyan accounts for this investment…
During 20X1, Blue Corporation sold products for $3,000,000 with the sales returns and allowances of $80,000. The company incurred selling expenses for $150,000 and administrative expenses for $400,000. During the year, the company purchased 20,000 common shares of Francis Corporation at $11 per share and recorded the FV-NI investments, and purchased 15,000 shares of Davis Corporation at $10 per share and recorded the FV-OCI investments. On December 31, 20X1, the share prices of Francis Corporation and Davis Corporation were $7 per share and $12 per share, respectively. The company recognized interest income for $78,000. The beginning-of-year balance of inventory was $760,000 and the end-of-year balance of inventory was $890,000. During the year, the company purchased inventory for $2,000,000. On September 1, 20X1, the company discontinued operation of a division that had an income of $200,000 for its operation in 20X1. The discontinued division had the carrying value of net…
At the beginning of the year 1, Down Under Company raises $60 million of equity and uses the proceeds to buy a fixed asset. Operating profits before depreciation (all received in cash) and dividends for the company are expected to be $40 million in year 1, $50 million in year 2, and $60 million in year 3, ath which point the company terminates. The firms pays no taxes. Assuming stright line depreciation to zero (of 20 million per year) the firm's profits thus equal $20 in year 1, $30 million in year 2 and $40 milion in year 3. If the cost of equity is 6%, the value of the firms equity is: Use the Discounted Dividend Valuation Method
As a long-term investment, Painters’ Equipment Company purchased 20% of AMC Supplies Ltd’s 400,000 shares for OMR480,000 at the beginning of the financial year of both companies. On the purchase date, the fair value and the book value of AMC’s net assets were equal. During the year, AMC earned net income of OMR250,000 and distributed cash dividends of OMR0.250 per share. At year-end, the fair value of the shares is OMR505,000. Required: 1.Assume no significant influence was acquired. Prepare the appropriate journal entries from the purchase through the end of the year. (Cost Method) 2.Assume significant influence was acquired. Re-enact the appropriate journal entries from the purchase through the end of the year to report the investment balance in the consolidated financial statements of Painters’ Equipment Company. (Equity Method)
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When the investor pays $100,000 to acquire 40% of a company's outstanding voting shares at a time when the fair value of the company's net assets are $175,000, the resulting goodwill amount is $30,000. True or False True False

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