Problems 469
A company has capital of $200,000,000. It has an expected ROIC of 9 percent, forecasted con-
stant growth of 5 percent, and a WACC of 10 percent. What is its value of operations? What is
its MVA? (Hint: Use Equation 12-4.)
You are given the following forecasted information for the year 2006: Sales$300,000,000;
Operating profitability (OP)6%; Capital requirements (CR)43%; Growth (g)5%;
and the weighted average cost of capital (WACC) 9.8%. If these values remain con-
stant, what is the horizon value (that is, the 2006 value of operations)? (Hint: Use Equation
12-3.)
The balance sheets of Hutter Amalgamated are shown below. If the 12/31/2002 value of opera-
tions is $756 million, what is the 12/31/2002 value of equity?
12–8
VALUE OF EQUITY
12–7
HORIZON VALUE
12–6
MVA
Balance Sheets, December 31, 2002 (Millions of Dollars)
Assets Liabilities and Equity
Cash $ 20.0 Accounts payable $ 19.0
Marketable securities 77.0 Notes payable 151.0
Accounts receivable 100.0 Accruals 51.0
Inventories 200.0 Total current liabilities $221.0
Total current assets $397.0 Long-term bonds 190.0
Net plant and equipment 279.0 Preferred stock $ 76.0
Common stock (par plus PIC) $100.0
Retained earnings 89.0
Common equity $189.0
Total assets $676.0 Total liabilities and equity $676.0
Balance Sheets, December 31, 2002 (Millions of Dollars)
Assets Liabilities and Equity
Cash $ 20.0 Accounts payable $ 19.0
Marketable securities 47.0 Notes payable 65.0
Accounts receivable 100.0 Accruals 51.0
Inventories 200.0 Total current liabilities $135.0
Total current assets $367.0 Long-term bonds 131.0
Net plant and equipment 279.0 Preferred stock $ 33.0
Common stock (par plus PIC) $160.0
Retained earnings 187.0
Common equity $347.0
Total assets $646.0 Total liabilities and equity $646.0
The balance sheets of Roop Industries are shown below. The 12/31/2002 value of opera-
tions is $651 million and there are 10 million shares of common equity. What is the price
per share?
12–9
PRICE PER SHARE
466 Corporate Valuation, Value-Based Management, and Corporate Governance
