M Question 6 (12 marks) The owners of Kripps and Kapacz Packaging Company (KKPC) are considering...

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M Question 6 (12 marks) The owners of Kripps and Kapacz Packaging Company (KKPC) are considering selling their business to an industry rival. The two owners each own 10,000 shares of KKPC, and they would like an estimate of the proper value of the shares. Below are the income statements for KKPC for the past four years. Revenue Cost of goods sold Gross profit Operating expenses Salary to owners Rent Restructuring charge Relocation expenses Gain on sale of building Other operating expenses Total operating expenses Pre-tax income Income tax at 35% Net income 2019 $2,587,500 1.772,438 815,062 200,000 100,000 - 57,500 2018 2017 $2,435,000 $2,350,000 1.631.450 1.551.000 803,550 799,000 200,000 200,000 125,000 125,000 75,000 - - 1 - (150,000) 135.000 310.000 489,000 171,150 2016 $2,225,750 1.446.738 779,012 155.000 150.000 512,500 550,000 302,562 253,550 324,512 105,897 88.743 113,579 $ 196.665 $ 164.807 $317.850 $ 210.933 200,000 125,000 b) Calculate KKCC's value per common share using the capitalization of approach. Do NOT weight the recent periods more heavily. (4 marks) 0 pp and ICP mern KKPC pays the owners salaries of $100,000 per year each as general manager and chief operating officer. The comparable salaries for these positions at a similarly sized business would be $150,000 each. 129,500 454,500 On January 1, 2019, the KKPC office moved to a space controlled by a company owned by the owners' wives which rented to them at a rate lower than market. Market rent for a similar space in 2019 was $125,000. Required: a) Calculate the normalized earnings for KKCC for 2016, 2017, 2018 and 2019. (8 marks) earnings KKPC is expected to grow its normalized net income at a constant rate of 3% for the foreseeable future. KKPC's capital structure is 60% equity and 40% debt, and its debt. consists of a $250,000 bank loan. The after-tax cost of KKPC's debt is 6.5%, and its weighted average cost of capital is 12.5%. KKPC is subject to tax at a rate of 35%. M Question 6 (12 marks) The owners of Kripps and Kapacz Packaging Company (KKPC) are considering selling their business to an industry rival. The two owners each own 10,000 shares of KKPC, and they would like an estimate of the proper value of the shares. Below are the income statements for KKPC for the past four years. Revenue Cost of goods sold Gross profit Operating expenses Salary to owners Rent Restructuring charge Relocation expenses Gain on sale of building Other operating expenses Total operating expenses Pre-tax income Income tax at 35% Net income 2019 $2,587,500 1.772,438 815,062 200,000 100,000 - 57,500 2018 2017 $2,435,000 $2,350,000 1.631.450 1.551.000 803,550 799,000 200,000 200,000 125,000 125,000 75,000 - - 1 - (150,000) 135.000 310.000 489,000 171,150 2016 $2,225,750 1.446.738 779,012 155.000 150.000 512,500 550,000 302,562 253,550 324,512 105,897 88.743 113,579 $ 196.665 $ 164.807 $317.850 $ 210.933 200,000 125,000 b) Calculate KKCC's value per common share using the capitalization of approach. Do NOT weight the recent periods more heavily. (4 marks) 0 pp and ICP mern KKPC pays the owners salaries of $100,000 per year each as general manager and chief operating officer. The comparable salaries for these positions at a similarly sized business would be $150,000 each. 129,500 454,500 On January 1, 2019, the KKPC office moved to a space controlled by a company owned by the owners' wives which rented to them at a rate lower than market. Market rent for a similar space in 2019 was $125,000. Required: a) Calculate the normalized earnings for KKCC for 2016, 2017, 2018 and 2019. (8 marks) earnings KKPC is expected to grow its normalized net income at a constant rate of 3% for the foreseeable future. KKPC's capital structure is 60% equity and 40% debt, and its debt. consists of a $250,000 bank loan. The after-tax cost of KKPC's debt is 6.5%, and its weighted average cost of capital is 12.5%. KKPC is subject to tax at a rate of 35%.

Answer rating: 100% (QA)

a Normalized earnings of KKPC are as follows 2019 2018 2017 2016 Pre Tax ... View the full answer