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J. Clark Inc.  - 1 Feb, 2012

J. Clark Inc. (JCI), a manufacturer and distributor 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  projections for the next year, 2011 (JCI has a fiscal year ending on June 30). JCI plans to liquidate $500 million of its short-term securities and distribute them on July 1, 2011, the first day of the next fiscal year, but has not yet decided whether to distribute with dividends or with stock repurchases.    

 

Inputs  

Amount of distribution   500

Tax rate            40%

WACC            11%

Number of shares          1,000

FCF constant growth rate 6.0%            6%

 

            Actual  Projected

Income Statement (Millions of Dollars)  30/6/2010        30/6/2011

Net Sales          20,000             21,200

Costs (except depreciation)       16,000             16,960

Depreciation     1,300  1,378

Earning before int. & tax            2,700  2,862

Interest expense            152      152.82

Earnings before taxes    2,548  2,709.18

Taxes   1,020  1,083.67

Net income        1,528  1,625.51

 

a. Assume first that JCI distributes the $500 million as dividends. Fill in the missing        

values in the balance sheet column for July 1, 2011, 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.)                                                          

 

See below for calculations.                                                       

 

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, 2011, that is labeled "Distribute as            

Repurchase." (Hint: Be sure that the balance sheets balance after you fill in the missing   

items.)                                                 

c. Calculate JCI's projected free cash flow; the tax rate is 40%.

d. What is JCI's current intrinsic stock price (the price on 6/30/2010)? What is the projected intrinsic stock price for 6/30/2011?

See below for calculations.

e. What is the projected intrinsic stock price on 7/1/2011 if JCI distributes the cash as dividends?

See below for calculations.

f. What is the projected intrinsic stock price on 7/1/2011 if JCI distributes the cash athrough stock repurchases? How many shares will remain outstanding after the repurchase?



Category : Financial Management

Search Keywords :
JCI , Divideds , Repurchase , Clark , Projections , Intrinsic , Value , Share 


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Answer  - 1 Feb, 2012
Please see the attachment....


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