CP

470 CHAPTER 12 Corporate Valuation, Value-Based Management, and Corporate Governance

The financial statements of Lioi Steel Fabricators are shown below, with the actual results for

2002 and the projections for 2003. Free cash flow is expected to grow at a 6 percent rate after

2003. The weighted average cost of capital is 11 percent.
      a.If operating capital as of 12/31/2002 is $502.2 million, what is the free cash flow for 12/31/2003?
      b.What is the horizon value as of 12/31/2003?
      c.What is the value of operations as of 12/31/2002?
      d.What is the total value of the company as of 12/31/2002?
      e.What is the price per share for 12/31/2002?

12–10

CORPORATE VALUATION

Income Statement for the Year Ending December 31 (Millions of Dollars Except for Per

Share Data)

Actual Projected

2002 2003

Net sales $500.0 $530.0

Costs (except depreciation) 360.0 381.6

Depreciation 37.5 39.8

Total operating costs $397.5 $421.4

Earnings before interest and tax $102.5 108.6

Less interest 13.9 16.0

Earnings before taxes $ 88.6 $ 92.6

Taxes (40%) 35.4 37.0

Net income before preferred dividends $ 53.2 $ 55.6

Preferred dividends 6.0 7.4

Net income avail. for common dividends $ 47.2 $ 48.2

Common dividends $ 40.8 $ 29.7

Addition to retained earnings $ 6.4 $ 18.5

Number of shares 10 10

Dividends per share $ 4.08 $ 2.97

Balance Sheets for December 31 (Millions of Dollars)

Actual Projected

2002 2003

Assets

Cash $ 5.3 $ 5.6

Marketable securities 49.9 51.9

Accounts receivable 53.0 56.2

Inventories 106.0 112.4

Total current assets $214.2 $226.1

Net plant and equipment 375.0 397.5

Total assets $589.2 $623.6

Corporate Valuation, Value-Based Management, and Corporate Governance 467