FI515 Financial Management Week 7 Project: 13-10 The financial statements of Lioi Steel Fabricators

FI515 Financial Management

Week 7 Course Project
Complete the Problem 13-10 Corporate Valuation on pages 551-552 in a Word document named "FI515_W7_Project_yourname". Show the details of your calculation/work in your answer to the Problem.

13-10 Corporate Valuation
The financial statements of Lioi Steel Fabricators are shown below—both the actual results for 2010 and the projections for 2011. Free cash flow is expected to grow at a 6% rate after 2011. The weighted average cost of capital is 11%.
Income Statements for the Year Ending December 31 (Millions of Dollars Except for Per Share Data)
Actual 2010 Projected 2011
Net sales $ 500.0 $ 530.0
Costs (except depreciation) 360.0 381.6
Depreciation 37.5 39.8
Total operating costs $ 397.5 $ 421.4
Earnings before interest and taxes $ 102.5 $ 108.6
Less interest 13.9 16.0
Earnings before taxes $ 88.6 $ 92.6
Taxes (40%) 35.4 37.0
Net income before preferred dividends $ 53.2 $ 55.6
Preferred dividends 6.0 7.4
Net income available for common dividends $ 47.2 $ 48.2
Common dividends $ 40.8 $ 29.7
Addition to retained earnings $ 6.4 $ 18.5
Number of shares 10 10
Dividends per share $ 4.08 $ 2.97
Balance Sheets for December 31 (Millions of Dollars)
Actual 2010 Projected 2011
Assets
Cash $ 5.3 $ 5.6
Marketable securities 49.9 51.9
Accounts receivable 53.0 56.2
Inventories 106.0 112.4
Total Current Assets $214.2 $226.1
Net Plant and Equipment 375.0 397.5
Total Assets $589.2 $623.6
Liabilities and Equity
Accounts Payable $ 9.6 $ 11.2
Notes Payable 69.9 74.1
Accruals 27.5 28.1
Total Current Liabilities $ 107.0 $113.4
Long term bonds 140.8 148.2
Preferred Stock 35.0 37.1
Common Stock (par plus PIC) 160.0 160.0
Retained Earnings 146.4 164.9
Common Equity $ 306.4 $ 324.9
Total Liabilities and Equity $ 589.2 $ 623.6

a. If operating capital as of 12/31/2010 is $502.2 million, what is the free cash flow for 12/31/2011?
b. What is the horizon value as of 12/31/2011?
c. What is the value of operations as of 12/31/2010?
d. What is the total value of the company as of 12/31/2010?
e. What is the intrinsic price per share for 12/31/2010?
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