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The financial statements of Lioi Steel Fabricators are shown

Corporate Valuation

The financial statements of Lioi Steel Fabricators are shown belowâ?"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%.

a. If operating capital as of 12/31/2010 is $502.2 million, what is the free cash flow for 12/31/2011?
b. What is the horizon value as of 12/31/2011?
c. What is the value of operations as of 12/31/2010?
d. What is the total value of the company as of 12/31/2010?
e. What is the intrinsic price per share for 12/31/2010?

Income Statements for the Year Ending December 31 (Millions of Dollars Except for Per Share Data)

Actual 2010 Projected 2011
Net sales $500.00 $530.00
Costs (except depreciation) 360 381.6
Depreciation 37.5     39.8
Total operating costs $397.50 $421.40
Earnings before interest and taxes $102.50 $108.60
Less interest 13.9     16
Earnings before taxes $88.60 $92.60
Taxes (40%)  35.4      37
Net income before preferred dividends $53.20 $55.60
Preferred dividends   6.0         7.4
Net income available for common dividends $47.20 $48.20
Common dividends $40.80 $29.70
Addition to retained earnings $6.40 $18.50
Number of shares 10 10
Dividends per share $4.08 $2.97
Balance Sheets for December 31 (Millions of Dollars)

Actual 2010 Projected 2011
Assets
Cash $ 5.3 $ 5.6
Marketable securities 49.9 51.9
Accounts receivable 53 56.2
Inventories  106.0 112.4
Total current assets $214.20 $226.10
Net plant and equipment  375.0 397.5
Total assets $589.20 $623.60
Liabilities and Equity 
Accounts payable $ 9.6 $11.20
Notes payable 69.9 74.1
Accruals  27.5 28.1
Total current liabilities $107.00 $113.40
Long-term bonds 140.8 148.2
Preferred stock 35 37.1
Common stock (par plus PIC) 160 160
Retained earnings  146.4    164.9
Common equity $306.40 $324.90
Total liabilities and equity $589.20 $623.60

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Solution Summary

Corporate Valuation

The financial statements of Lioi Steel Fabricators are shown belowâ?"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%.

a. If operating capital as of 12/31/2010 is $502.2 million, what is the free cash flow for 12/31/2011?
b. What is the horizon value as of 12/31/2011?
c. What is the value of operations as of 12/31/2010?
d. What is the total value of the company as of 12/31/2010?
e. What is the intrinsic price per share for 12/31/2010?

Income Statements for the Year Ending December 31 (Millions of Dollars Except for Per Share Data)

Actual 2010 Projected 2011
Net sales $500.00 $530.00
Costs (except depreciation) 360 381.6
Depreciation 37.5     39.8
Total operating costs $397.50 $421.40
Earnings before interest and taxes $102.50 $108.60
Less interest 13.9     16
Earnings before taxes $88.60 $92.60
Taxes (40%)  35.4      37
Net income before preferred dividends $53.20 $55.60
Preferred dividends   6.0         7.4
Net income available for common dividends $47.20 $48.20
Common dividends $40.80 $29.70
Addition to retained earnings $6.40 $18.50
Number of shares 10 10
Dividends per share $4.08 $2.97
Balance Sheets for December 31 (Millions of Dollars)

Actual 2010 Projected 2011
Assets
Cash $ 5.3 $ 5.6
Marketable securities 49.9 51.9
Accounts receivable 53 56.2
Inventories  106.0 112.4
Total current assets $214.20 $226.10
Net plant and equipment  375.0 397.5
Total assets $589.20 $623.60
Liabilities and Equity 
Accounts payable $ 9.6 $11.20
Notes payable 69.9 74.1
Accruals  27.5 28.1
Total current liabilities $107.00 $113.40
Long-term bonds 140.8 148.2
Preferred stock 35 37.1
Common stock (par plus PIC) 160 160
Retained earnings  146.4    164.9
Common equity $306.40 $324.90
Total liabilities and equity

$2.19