1.Beachwood Builders merged with Country Point Homes in December 31, 1992. Both companies were builders of mid-scale and luxury homes in their respective markets. On December 31, 2002, because of tax considerations and the need to segment the businesses between mid-scale and luxury homes, Beachwood decided to spin-off Country Point, its luxury home subsidiary, to its common shareholders. Beachwood retained Bernheim Securities to value the spin-off of Country Point to its shareholders.
The following information is available to Bernheim’s investment bankers:
§ Country Point’s allocated common equity was $55.6 million as of December 31, 2002.
§ Beachwood paid no dividends and has no preferred shareholders.
§ Country Point’s free cash flow is expected to grow 7 percent after 2006.
§ The current risk-free rate is 6 percent. The market risk premium is 11 percent.
§ Beachwood Builders had 5 million common shares as of December 31, 2002.
§ Country Point’s cost of capital is equal to its return on equity at year-end (round to nearest percentage point).
§ Country Point did not have any long-term debt allocated from Beachwood.
The following table for Country Point is also available for analysis
$ (in millions) | 2002 | 2003 | 2004 | 2005 | 2006 |
Net Income | 10 | 15 | 20 | 25 | 30 |
Depreciation | 5 | 6 | 5 | 6 | 5 |
Capital Expenditures | 7 | 8 | 9 | 10 | 12 |
Bernheim’s investment bankers have determined that the value of Country Point to be $162.6 million and to effect the spin-off, it was appropriate for Beachwood to issue its common shareholders two shares in Country Point for each share that its current shareholders held. The appropriate initial offering price per share for the spin-off to Beachwood’s shareholders should be:
A) $14.45.
B) $28.90.
C) $16.26.
D) $32.50.
2.Immediately after the spin-off, Country Point’s book value per share would be:
A) $11.12.
B) $16.25.
C) $32.50.
D) $5.56.
3.Based on the initial offering price of the spin-off, the estimated price-to-book ratio is:
A) 2.92 times.
B) 2.00 times.
C) 2.60 times.
D) 1.46 times.
4.Based on Bernheim’s careful analysis, comparable firms to Country Point trade at a price-to-book ratio of 3.5 times. The expected price per share of the spin-off assuming a liquid and efficient market for Country Point’s common shares would be:
A) $38.92.
B) $56.88.
C) $113.75.
D) $19.46.
5.The trailing price-to-earnings (P/E) ratio is defined as:
A) price to next period's expected earnings.
B) the average P/E over the last five years.
C) price to expected terminal earnings.
D) price to most recent earnings.
答案和详解如下：
1.Beachwood Builders merged with Country Point Homes in December 31, 1992. Both companies were builders of mid-scale and luxury homes in their respective markets. On December 31, 2002, because of tax considerations and the need to segment the businesses between mid-scale and luxury homes, Beachwood decided to spin-off Country Point, its luxury home subsidiary, to its common shareholders. Beachwood retained Bernheim Securities to value the spin-off of Country Point to its shareholders.
The following information is available to Bernheim’s investment bankers:
§ Country Point’s allocated common equity was $55.6 million as of December 31, 2002.
§ Beachwood paid no dividends and has no preferred shareholders.
§ Country Point’s free cash flow is expected to grow 7 percent after 2006.
§ The current risk-free rate is 6 percent. The market risk premium is 11 percent.
§ Beachwood Builders had 5 million common shares as of December 31, 2002.
§ Country Point’s cost of capital is equal to its return on equity at year-end (round to nearest percentage point).
§ Country Point did not have any long-term debt allocated from Beachwood.
The following table for Country Point is also available for analysis
$ (in millions) | 2002 | 2003 | 2004 | 2005 | 2006 |
Net Income | 10 | 15 | 20 | 25 | 30 |
Depreciation | 5 | 6 | 5 | 6 | 5 |
Capital Expenditures | 7 | 8 | 9 | 10 | 12 |
Bernheim’s investment bankers have determined that the value of Country Point to be $162.6 million and to effect the spin-off, it was appropriate for Beachwood to issue its common shareholders two shares in Country Point for each share that its current shareholders held. The appropriate initial offering price per share for the spin-off to Beachwood’s shareholders should be:
A) $14.45.
B) $28.90.
C) $16.26.
D) $32.50.
The correct answer was C)
Since the shareholders receive two shares of the spin-off for every share they currently hold, each Beachwood common shareholder would receive two common shares of Country Point. At December 31, 2002, Beachwood had 5 million shares. Therefore, 10 million common shares were to be issued for the spin-off. If the value of the spin-off was valued at $162.6 million and divided by 10 million, you will arrive at a spin-off price per share of $16.26 ($162.6 million/10 million).
2.Immediately after the spin-off, Country Point’s book value per share would be:
A) $11.12.
B) $16.25.
C) $32.50.
D) $5.56.
The correct answer was D)
The allocated common equity or book value of Country Point was $55.6 million at year-end 2002 and 10 million shares were allocated for the spin-off. The book value would be $5.56 per share ($55.6 million / 10 million).
3.Based on the initial offering price of the spin-off, the estimated price-to-book ratio is:
A) 2.92 times.
B) 2.00 times.
C) 2.60 times.
D) 1.46 times.
The correct answer was A)
The price-to-book ratio is determined by taking the spin-off price and dividing it by the book value per share. Hence, the ratio is 2.92 times book ($16.26 per share spin-off price / $5.56 book value per share).
4.Based on Bernheim’s careful analysis, comparable firms to Country Point trade at a price-to-book ratio of 3.5 times. The expected price per share of the spin-off assuming a liquid and efficient market for Country Point’s common shares would be:
A) $38.92.
B) $56.88.
C) $113.75.
D) $19.46.
The correct answer was D)
If we assume that the comparable price-to-book ratio is 3.5 times, then we simply multiply the book value by 3.5 to arrive at $19.46 ($5.56 × 3.5).
5.The trailing price-to-earnings (P/E) ratio is defined as:
A) price to next period's expected earnings.
B) the average P/E over the last five years.
C) price to expected terminal earnings.
D) price to most recent earnings.
The correct answer was D)
The trailing P/E ratio is price to most recent realized earnings.
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