Fin515 Project 2

(13-10) Corporate Valuation The financial statements of Lioi Steel Fabricators are shown below—both the actual results for 2010 and the projections for 2011. Free cash flow is expected to grow at a 6% rate after 2011. The weighted average cost of capital is 11%

Income Statements for the Year Ending December 31 (Millions of Dollars Except for Per Share Data) Actual 2010 Projected 2011 500.00 $ 530.00 360.00 381.60 37.50 39.80 397.50 $ 421.40 102.50 $ 108.60 13.90 16.00 88.60 $ 92.60 $35.44 53.16 6.00 47.16 $ $ $37.04 55.56 7.40 48.16 29.70 18.46 10 2.97

Balance Sheet, December 21, 2010 Actual 2010 Projected 2011 $ 5.60 51.90 56.20 112.40 226.10 397.50 623.60

Net sales Costs (except depreciation) Depreciation Total operating costs Earnings before interest and taxes Less interest Earnings before taxes Taxes (40%) Net income before preferred dividends Preferred dividends Net income available for common dividends Common dividends Addition to retained earnings Number of shares Dividends per share

$

$ $ $ $ $ $ $ $

Assets Cash Marketable securities Accounts receivable Inventories Total current assets Net plant and equipment Total assets Liabilities and Equity Accounts payable Notes payable Accruals Total current liabilities Long-term bonds Preferred stock Common stock (par plus PIC) Retained earnings Common equity Total liabilities and equity

$

$ $

5.30 49.90 53.00 106.00 214.20 375.00 589.20

$ $

$

9.60 69.90 27.50 107.00 140.80 35.00 160.00 146.40 306.40 589.20

$

11.20 74.10 28.10 113.40 148.20 37.10 160.00 164.90 324.90 623.60

40.80 $ 6.36 $ 10 4.08 $

$

$

$ $

$ $

a. If operating capital as of 12/31/2010 is $502.2 million, what is the free cash flow for 12/31/2011?
(in millions) 65.16 134.90 532.40 30.20 34.96

NOPAT = EBIT (1-Tax Rate) NOWC =Operating Current assets - Operating Current Liabilities Total net operating capital = NOWC + Operating long-term assets Net investment in operting capital = NOC 2011 -