LAFCO Industries Believes That Its Two Primary Product Lines, Automotive

question 106

Essay

LAFCO Industries believes that its two primary product lines, automotive and commercial aircraft valves, are rapidly becoming
obsolete. Its free cash flow is rapidly diminishing as it loses market share to new firms entering its industry. LAFCO has $200
million in debt outstanding. Senior management expects the automotive and commercial aircraft valve product lines to
generate $25 million and $15 million, respectively, in earnings before interest, taxes, depreciation, and amortization next year. Senior management also believes that they will not be able to upgrade these product lines due to declining cash flow and excessive current leverage. A competitor to its automotive valve business last year sold for 10 times EBITDA. Moreover, a company that is similar to its commercial aircraft valve product line sold last month for 12 times EBITDA. Estimate LAFCO's breakup value before taxes.

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Definitions:

Communication Networks

Systems or structures that enable the exchange of information between entities over distances through electronic or other means.

Developing Country

A nation with a lower living standard, underdeveloped industrial base, and low Human Development Index relative to other countries.

Capital Imports

The purchase and importation of foreign capital goods and services, reflecting a country's investment in assets that promote economic growth.

Foreign Aid

Financial or non-financial assistance given from one country to another, often to support development or alleviate poverty.