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Ashurbanipal Ashurbanipal
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2 months ago
An acquiring firm is considering buying Toronto Tailors Inc. (TT). The sales, income statement, capital, and valuation ratios information for TT is provided below. Using this information, estimate the value of TT's equity:
a) using the industry averages for the first five valuation ratios presented below
b) using the five-year averages for TT for the first five valuation ratios presented below
c) using the forward P/E ratio based on the following assumptions:
8% is a reasonable cost of equity for TT;
TT maintains its present dividend payout ratio; and
TT's earnings and dividends grow at an annual rate of 5 percent indefinitely

Sales and Income Statement Items
($ millions)
Sales10
Volume = 2 million
Price per unit = $5
Costs(8.5)
Variable costs 3.5
Fixed cash costs 3.0
Depreciation 0.5
Interest 0.6
Income tax 0.9
Net Income1.5
Dividends0.5


CAPITAL:
Invested capital (book values):
($ millions)
  Equity8
  Debt8
Market value of equity:24

Valuation RatiosCurrent5-Yr Avg.Industry Avg.
Price-earnings (P/E) (trailing)16x15.5x17.6x
Value/EBIT10.67x7.33x10x
Value/EBITDA9.14x7.24x9.05x
P/Sales2.4x2.16x2.56x
P/Book value (P/B) (equity)3x3x3.2x
Price per unit of output1211.612.8
Return on equity (ROE)18.8%15.5%16.4%
Textbook 
Corporate Finance

Corporate Finance


Edition: 5th
Author:
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CrazyW27CrazyW27
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Ashurbanipal Author
wrote...

2 months ago
I appreciate what you did here, answered it right Smiling Face with Open Mouth
wrote...

Yesterday
Good timing, thanks!
wrote...

2 hours ago
this is exactly what I needed
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