Refer to the information for Brooks Plumbing Products Inc. (BPP) in Problem 20-53.

Data from Problem 20-53

Brooks Plumbing Products Inc. (BPP) manufactures plumbing fixtures and other home improvement products that are sold in Home Depot and Walmart as well as hardware stores. BPP has a solid reputation for providing value products, good quality, and a good price. The company has been approached by an investment banking firm representing a third company, Garden Specialties Inc. (GSI), that is interested in acquiring BPP. The acquiring firm (GSI) is a retailer of garden supplies; it sees the potential synergies of the combined firm and is willing to pay BPP shareholders $38 cash per share for their stock, which is greater than the current stock price; the stock has traded at about $35 in recent months. Summary financial information about BPP follows.

Required

(round all calculated answers to the nearest whole dollar)

1. What is the valuation of BPP (for 2019) using the market value method?

2. What is the valuation of BPP (for 2019) using the book value method?

3. What are the valuations of BPP (for 2019) using the multiples-based methods for sales, earnings, and free cash flow?

4. What is the estimated value for BPP using the discounted free cash flow method, assuming that the 2019 amount of free cash flow continues indefinitely?

5. Which of the methods would you use? Why?

6. Is the GSI offer a good one? Why or why not?

7. What would be the effect of sustainability issues, if any, in the acquisition of BPP by GSI?

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BROOKS PLUMBING PRODUCTS INC. Selected Financial Information For the Years Ended December 31 2019 2019 2018 Industry Average $ 79,919,778 $ 3,456,227 87,294,771 59,883,645 Cash Accounts receivable 56,778,465 Inventory Long-lived assets Gross book value 39,665,416 167,278,377 143,778,377 95,887,302 188,465,338 67,335,209 120,995,274 37,885,302 Net book value 100,620,809 170,587,409 Replacement cost Liquidation value Current liabilities Long-term debt Shareholders' equity Capital expenditures Sales 68,734,002 119,045,766 31,997,364 125,941,338 23,500,000 87,641,369 12,990,336 667,534,771 498,657,788 102,667,355 638,776,465 477,491,001 134,765,229 Cost of sales Operating expense" Income tax rate 38% 38% 38.0% $18,766,493 $2,750,000 $15,664,254 $1,250,000 $22.99 22,763,554 Depreciation expense Dividends Year-end stock price Number of outstanding shares Sales multiplier Free cash flow multiplier Earnings multiplier Cost of capital 78 25,689,554 1.40 8.80 13.50 5.2% 5.2% Accounts receivable turnover 5.50 Inventory turnover 8.60 Current ratio 1.90 Quick ratio 1.10 Cash flow ratio 1.40 Free cash flow ratio 1.10 Gross margin percentage Return on assets (net book value) Return on equity Earnings per share 33.0% 19.0% 28.0% $2.33