You have been given the information for Knicks Inc, a publicly traded sporting team that owns 72%
Question:
You have been given the information for Knicks Inc, a publicly traded sporting team that owns 72% of Linsanity, a television network. Linsanity has been fully consolidated into Knicks’s financial statements. You have collected the following information:
Knicks (consolidated, denominated in millions)
After-tax Operating Income of $35
Book (Market) debt of $41
Book equity of $110
Book cash of $25
Cost of capital for a typical sporting team is 7%
In stable growth with a growth rate of 2.5% forever
Linsanity (denominated in millions)
After-tax Operating Income $15
Book (market) debt of $21
Book equity of $35
Book cash of $12
Cost of capital for a typical television network is 9%
In stable growth with a growth rate of 2.5% forever
Estimate the value of equity in Knicks Inc.(Consolidated)
Auditing The Art and Science of Assurance Engagements
ISBN: 978-0133405507
13th Canadian edition
Authors: Alvin A. Arens, Randal J. Elder, Mark S. Beasley, Joanne C. Jones