Solution 11/26/2018
Chapter: 14 Note to authors: Make the actual balance sheets and income statements fixed values for student version.
Problem: 13 Also, for total net op cap for first year, make into fixed values
WACC 11.0%
Number of shares 1,000
FCF constant growth rate 6.0%
Actual Projected
Income Statement (Millions of Dollars) 6/30/2019 6/30/2020
Net Sales $19,490 $20,658
Costs (except depreciation) $16,000 $16,960
Depreciation $1,300 $1,378
Earning before int. & tax $2,190 $2,320
Interest expense $150 $152
Earnings before taxes $2,040 $2,168
Taxes $510 $542
Net income $1,530 $1,626
See below for
calculations.
Balance Sheets (Millions of Dollars) Actual
Assets 6/30/2019 6/30/2020 7/1/2020 7/2/2020
Cash $160 $170 $170 $170
Short-term investments $200 $640 $140 $140
Accounts receivable $2,000 $2,120 $2,120 $2,120
Inventories $3,000 $3,180 $3,180 $3,180
Total current assets $5,360 $6,110 $5,610 $5,610
Net plant and equipment $13,000 $13,780 $13,780 $13,780
Total assets $18,360 $19,890 $19,390 $19,390
Liabilities & Equity
Accounts payable $1,000 $1,060 $1,060 $1,060
Accruals $2,000 $2,120 $2,120 $2,120
Short-term debt $400 $124 $124 $124
Total current liabilities $3,400 $3,304 $3,304 $3,304
Long-term debt $2,070 $2,070 $2,070 $2,070
Total liabilities $5,470 $5,374 $5,374 $5,374
Common stock $5,850 $5,850 $5,850 $5,850
Treasury stock ($400) ($400) ($400) ($900)
J. Clark Inc. (JCI), a manufacturer and distributer of sports equipment, has grown until it has become a stable, mature company.
Now JCI is planning its first distribution to shareholders. Shown below are the most recent year's financial statements and
Projected:
Prior to
Distribution
Distribute as
Dividend
Distribute as
Repurchase
a. Assume first that JCI distributes the $500 million as dividends. Fill in the missing values in the balance sheet
column for July 1, 2020, that is labeled "Distribute as Dividends." (Hint: Be sure that the balance sheets balance after
you fill in the missing items. Also, assume JCI did not have to establish an account for dividends payable prior to the
distribution.)
b. Now assume that JCI distributes the $500 million through stock repurchases. Fill in the missing values in the
balance sheet column for July 1, 2020, that is labeled "Distribute as Repurchase." (Hint: Be sure that the balance
sheets balance after you fill in the missing items.)
Valuation 6/30/2019 6/30/2020