Based on the corporate valuation model, Bernile Inc.'s value of operations is $750 million. Its balance sheet shows $50 million of short-term investments that are unrelated to operations, $100 million of accounts payable, $100 million of notes payable, $200 million of long-term debt, $40 million of common stock (par plus paid-in-capital), and $160 million of retained earnings. What is the best estimate for the firm's value of equity, in millions?
Click here for the solution: Based on the corporate valuation model, Bernile Inc.'s value of operations is $750 million
Showing posts with label Valuation. Show all posts
Showing posts with label Valuation. Show all posts
Sunday, August 23, 2015
Saturday, August 15, 2015
Harrisburg Company is considering changing its inventory valuation method from FIFO to LIFO because of the potential tax savings
CA8-10 (FIFO and LIFO) Harrisburg Company is considering changing its inventory valuation method from FIFO to LIFO because of the potential tax savings. However, the management wishes to consider all of the effects on the company, including its reported performance, before making the final decision.
The inventory account, currently valued on the FIFO basis, consists of 1,000,000 units at $8 per unit on January 1, 2010. There are 1,000,000 shares of common stock outstanding as of January 1, 2010, and the cash balance is $400,000.
The company has made the following forecasts for the period 2010–2012.
Instructions
(a) Prepare a schedule that illustrates and compares the following data for Harrisburg Company under the FIFO and the LIFO inventory method for 2010–2012. Assume the company would begin LIFO at the beginning of 2010.
1. Year-end inventory balances.
2. Annual net income after taxes.
3. Earnings per share.
4. Cash balance.
Assume all sales are collected in the year of sale and all purchases, operating expenses, and taxes are paid during the year incurred.
(b) Using the data above, your answer to (a), and any additional issues you believe need to be considered, prepare a report that recommends whether or not Harrisburg Company should change to the LIFO inventory method. Support your conclusions with appropriate arguments.
Click here for the solution: Harrisburg Company is considering changing its inventory valuation method from FIFO to LIFO because of the potential tax savings
The inventory account, currently valued on the FIFO basis, consists of 1,000,000 units at $8 per unit on January 1, 2010. There are 1,000,000 shares of common stock outstanding as of January 1, 2010, and the cash balance is $400,000.
The company has made the following forecasts for the period 2010–2012.
Instructions
(a) Prepare a schedule that illustrates and compares the following data for Harrisburg Company under the FIFO and the LIFO inventory method for 2010–2012. Assume the company would begin LIFO at the beginning of 2010.
1. Year-end inventory balances.
2. Annual net income after taxes.
3. Earnings per share.
4. Cash balance.
Assume all sales are collected in the year of sale and all purchases, operating expenses, and taxes are paid during the year incurred.
(b) Using the data above, your answer to (a), and any additional issues you believe need to be considered, prepare a report that recommends whether or not Harrisburg Company should change to the LIFO inventory method. Support your conclusions with appropriate arguments.
Click here for the solution: Harrisburg Company is considering changing its inventory valuation method from FIFO to LIFO because of the potential tax savings
Wednesday, July 15, 2015
Your firm uses return on assets (ROA) to evaluate investment centers and is considering changing the valuation basis of assets from historical cost to current value
P 5–6: Metal Press
Your firm uses return on assets (ROA) to evaluate investment centers and is considering changing the valuation basis of assets from historical cost to current value. When the historical cost of the asset is updated, a price index is used to approximate replacement value. For example, a metal fabrication press, which bends and shapes metal, was bought seven years ago for $522,000. The company will add 19 percent to this cost, representing the change in the wholesale price index over the seven years. This new, higher cost figure is depreciated using the straight-line method over the same 12-year assumed life (no salvage value).
Required:
a. Calculate depreciation expense and book value of the metal press under both historical cost and price-level-adjusted historical cost.
b. In general, what is the effect on ROA of changing valuation bases from historical cost to current values?
c. The manager of the investment center with the metal press is considering replacing it because it is becoming obsolete. Will the manager’s incentives to replace the metal press change if the firm shifts from historical cost valuation to the proposed price-level adjusted historical cost valuation?
Click here for the solution: Your firm uses return on assets (ROA) to evaluate investment centers and is considering changing the valuation basis of assets from historical cost to current value
Your firm uses return on assets (ROA) to evaluate investment centers and is considering changing the valuation basis of assets from historical cost to current value. When the historical cost of the asset is updated, a price index is used to approximate replacement value. For example, a metal fabrication press, which bends and shapes metal, was bought seven years ago for $522,000. The company will add 19 percent to this cost, representing the change in the wholesale price index over the seven years. This new, higher cost figure is depreciated using the straight-line method over the same 12-year assumed life (no salvage value).
Required:
a. Calculate depreciation expense and book value of the metal press under both historical cost and price-level-adjusted historical cost.
b. In general, what is the effect on ROA of changing valuation bases from historical cost to current values?
c. The manager of the investment center with the metal press is considering replacing it because it is becoming obsolete. Will the manager’s incentives to replace the metal press change if the firm shifts from historical cost valuation to the proposed price-level adjusted historical cost valuation?
Click here for the solution: Your firm uses return on assets (ROA) to evaluate investment centers and is considering changing the valuation basis of assets from historical cost to current value
Tuesday, July 14, 2015
(Nonconstant Growth Valuation) A company currently pays a dividend of $2 per share (D0 = $2)
(Nonconstant Growth Valuation)
A company currently pays a dividend of $2 per share (D0 = $2). It is
estimated that the company’s dividend will grow at a rate of 20% per
year for the next 2 years, then at a constant rate of 7% thereafter. The
company’s stock has a beta of 1.2, the risk-free rate is 7.5%, and the
market risk premium is 4%. What is your estimate of the stock’s current
price?
Click here for the solution: (Nonconstant Growth Valuation) A company currently pays a dividend of $2 per share (D0 = $2)
Click here for the solution: (Nonconstant Growth Valuation) A company currently pays a dividend of $2 per share (D0 = $2)
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