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QUESTION 8 The Harrison Bicycle Company had the following operating results for 2015-2016.

QUESTION 8


  1. The Harrison Bicycle Company had the following operating results for 2015-2016. In addition, the company paid dividends in both 2015 and 2016 of $80,000 per year and made capital expenditures in both years of $230,000 per year. The company's stock price in 2015 was $14.20 and $12.50 in 2016. Also in 2016, the industry average earnings multiple for the bicycle industry was 8 and the free cash flow and sales multiples were 16 and 1.35, respectively. The company is publicly owned and has 1,400,000 shares of outstanding stock at the end of 2016.


  2. Balance Sheet, Dec 31, 20162015Cash$267,000$100,000Accounts Receivable$525,000$400,000Inventory $450,000 $300,000    Total Current Assets$1,242,000$800,000Long-lived Assets1,205,000 1,100,000    Total Assets$2,447,000$1,900,000Current Liabilities$500,000$300,000Long-term Debt600,000500,000Shareholder Equity 1,347,000 1,100,000  Total Debt and Equity$2,447,000$1,900,000Income Statement, for year ended Dec 31, 20162015Sales$6,250,000$5,450,000Cost of Sales 5,125,000 4,400,000    Gross Margin1,125,0001,050,000Operating Expenses   580,000   550,000    Operating Income545,000500,000Taxes   218,000    200,000   Net Income$327,000$300,000         Cash Flow From Operations20162015Net Income$327,000$300,000Plus Depreciation Expense125,000125,000+ Decrease (-inc) in AccRec. and Inv.(275,000)-+ Increase (-dec) in Cur. Liabl. 200,000               -   Cash Flow from Operations$377,000$425,000The value of the company, calculated using the free cash flow multiple for 2016 is:
  3. $2,520,000$2,616,000$8,437,500$1,347,000$1,072,000

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