You receive the attached balance sheet for Auto Inc.'s December 31, 2019 fiscal year. Auto Inc.,...

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You receive the attached balance sheet for Auto Inc.'s December 31, 2019 fiscal year. Auto Inc., a publicly traded company, is a manufacturer of auto parts and its current stock price is $168/share as at December 31, 2019. In addition to the book values, the balance sheet presents the fair market value of Auto Inc.'s assets. After some research you determine the following: Auto Inc.'s beta is 1.87 Auto Inc.'s tax rate is 25% The long term industry growth rate is 4% The average, normal, debt to equity ratio for companies in this industry is 1.5:1 and the normal working capital ratio for companies in this industry is 1.1. The rate of return on long term treasury bills is 2% and the long term return on the equity market is 11%. - Auto Inc. Balance Sheet As at December 31, 2019 and 2018 Assets Current Assets Cash Short-term investments Accounts receivable Inventories Prepaid expenses Property, plant and equipment Total Assets Liabilities Current Liabilities Accounts payable Accrued liabilities Current portion of long-term debt Long-term debt (average interest rate 7%). Total Liabilities Shareholders' Equity Common shares (187 miilion shares outstanding) Retained earnings (in $ millions) Fair Value Total Liabilities and Shareholders' Equity 2019 Book Value 498 $ 650 231 520 93 1,992 1,800 3,792 $ 498 449 431 420 93 1,891 2,492 4,383 311 261 380 952 1,944 2,896 10 1,477 1,487 4,383 Required: 1) Calculate the WACC and capitalization rate that you would use in determining the fair market value of Auto Inc. Show all calculations. 2) You have been asked to calculate the Enterprise Value of Auto Inc. as at December 31, 2019, based on the market's current Equity Value of Auto Inc. Show all calculations.. You receive the attached balance sheet for Auto Inc.'s December 31, 2019 fiscal year. Auto Inc., a publicly traded company, is a manufacturer of auto parts and its current stock price is $168/share as at December 31, 2019. In addition to the book values, the balance sheet presents the fair market value of Auto Inc.'s assets. After some research you determine the following: Auto Inc.'s beta is 1.87 Auto Inc.'s tax rate is 25% The long term industry growth rate is 4% The average, normal, debt to equity ratio for companies in this industry is 1.5:1 and the normal working capital ratio for companies in this industry is 1.1. The rate of return on long term treasury bills is 2% and the long term return on the equity market is 11%. - Auto Inc. Balance Sheet As at December 31, 2019 and 2018 Assets Current Assets Cash Short-term investments Accounts receivable Inventories Prepaid expenses Property, plant and equipment Total Assets Liabilities Current Liabilities Accounts payable Accrued liabilities Current portion of long-term debt Long-term debt (average interest rate 7%). Total Liabilities Shareholders' Equity Common shares (187 miilion shares outstanding) Retained earnings (in $ millions) Fair Value Total Liabilities and Shareholders' Equity 2019 Book Value 498 $ 650 231 520 93 1,992 1,800 3,792 $ 498 449 431 420 93 1,891 2,492 4,383 311 261 380 952 1,944 2,896 10 1,477 1,487 4,383 Required: 1) Calculate the WACC and capitalization rate that you would use in determining the fair market value of Auto Inc. Show all calculations. 2) You have been asked to calculate the Enterprise Value of Auto Inc. as at December 31, 2019, based on the market's current Equity Value of Auto Inc. Show all calculations..

Answer rating: 100% (QA)

Here are the steps to calculate the WACC and capitalization rate for Auto Inc 1 Calculate the cost o... View the full answer