An analyst is trying to value Jasons Specialties (JS) stock. The analyst has collected data from the
Question:
An analyst is trying to value Jason’s Specialties (JS) stock. The analyst has collected data from the company and other sources to prepare the below financials, both actual and projected. Based upon these sources, the analyst expects the company’s free cash flows to grow at 4% on average. The analyst has estimated the company’s cost of capital (WACC) to be 16% and its cost of equity to be 21%. The risk-free rate is 2.3%..
- Find the value of the firm using ECF method and price per share assuming that there are 10,000,000 shares issued and outstanding
- What is the External Financing Needed for year 2020? Explain your calculation
- Suppose that the firm's probability of bankruptcy is estimated to be 5% and the economic loss associated with bankruptcy is likely to amount to $55,000,000. What valuation method would allow you to take this into account? Describe briefly how you would implement it (you do not have enough information to actually do the calculations, so no need to try).
Income statement for the fiscal year ending January 1 (Millions of dollars)
2019 (Actual) | 2020 (Projected) | ||
Net Sales | $400.0 | $430.0 | |
Costs | 260.0 | 283.5 | |
Depreciation | 37.5 | 42.5 | |
Earnings before interest and taxes | 102.5 | 104.0 | |
Interest expense | 14.1 | 16.0 | |
Earnings before taxes | 88.4 | 89.9 | |
Taxes (40%) | 35.36 | 35.2 | |
Net income before preferred dividends | 53.04 | 52.8 | |
Preferred dividends | 6.0 | 6.5 | |
Net income | 47.04 | 46.3 | |
Common dividends | 37.632 | 38.2 | |
Addition to retained earnings | 9.0408 | 8.1 | |
Balance sheets for the fiscal year ending January 1 (Millions of dollars)
2019 (Actual) | 2020 (Projected) | ||
Cash | $6.3 | $3.6 | |
Marketable Securities | 40.9 | 39.128 | |
Accounts Receivable | 62.0 | 67.0 | |
Inventories | 107.0 | 105.5 | |
Net plant & equipment | 391.0 | 415.36 | |
Total Assets | 607.2 | 630.58 | |
Accounts payable | 9.6 | 12.1 | |
Accruals | 25.5 | 29.1 | |
Long-term bonds | 210.7 | 217.78 | |
Preferred Stock | 55 | 57.1 | |
Common Stock (Par plus PIC) | 160.0 | 160.0 | |
Retained earnings | 146.4 | 154.5 | |
Total Liabilities & Equity | 607.2 | 630.58 |
Essentials of Business Statistics Communicating With Numbers
ISBN: 978-0078020544
1st edition
Authors: Sanjiv Jaggia, Alison Kelly