The King Mattress Company Had the Following Operating Results for 2018-2019

question 19

Multiple Choice

The King Mattress Company had the following operating results for 2018-2019. In addition, the company paid dividends in both 2018 and 2019 of $60,000 per year and made capital expenditures in both years of $30,000 per year. The company's stock price in 2018 was $8 and $7 in 2019. The industry average earnings multiple for the mattress industry was 9 in 2019 and the free cash flow and sales multiples were 18 and 1.5, respectively. The company is publicly owned and has 1,200,000 shares of outstanding stock at the end of 2019.
$\text { Balance Sheet, Dec 31, }$
$\begin{array}{lllll} & 2019 & 2018 \\\text { Cash } & \$ 340,000 & \$ 100,000 \\\text { Accounts Receivable } & \$ 350,000 & \$ 400,000 \\\text { Inventory } & \$ 250,000 & \$ 300,000 \\\hline\text { Total Current Assets }&\$940,000&\$800,000\\\text { Long-lived Assets }&1,080,000&1,100,000\\\hline\text { Total Assets }&\$2,020,000&\$1,900,000\\\hline \text { Current Liabilities }&\$200,000&\$300,000\\\text { Long-term Debt } & 600,000 & 500,000 \\\text { Shareholder Equity } & 1,220,000 & 1,100,000\\\hline\text { Total Debt and Equity }&\$2,020,000&\$1,900,000\end{array}$

$\text { Income Statement, for year ended Dec } 31 \text {, }$
$\begin{array}{lcc} & 2019 & 2018 \\\text { Sales } & \$ 4,750,000 & \$ 4,500,000 \\\text { Cost of Sales } & 4,100,000 & 4,000,000\\\hline\text { Gross Margin } & 650,000 & 500,000 \\\text { Operating Expenses } & 350,000 & 400,000 \\\hline\text { Operating Income } & 300,000 & 100,000 \\\text { Taxes } & 120,000 & 40,000\\\hline\text { Net Income }&\$180,000&\$60,000\\\\\text { Cash Flow from Operations } & 2019 & 2018 \\\text { Net Income } & \$ 180,000 & \$ 60.000\\\text { Plus Depreciation Expense } & 50,000 & 50,000 \\\text { + Decrease (-inc) in AccRec. and Inv. } & 100,000&-\\\text { + Increase (-dec) in Cur. Liabl. }&(100,000) &-\\\text { Cash Flow from Operations }&\$230,000&\$110,000\end{array}$
The market value of the company's equity for 2019 is:

• A)$1,220,000
• B)$1,620,000
• C)$2,520,000
• D)$8,400,000
• E)$7,125,000

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Definitions:

Consolidated Balance Sheet

A financial statement that presents the assets, liabilities, and shareholders' equity of a parent company and its subsidiaries as one entity.

Net Assets

The total assets of a company or organization minus its total liabilities, reflecting the entity's own equity value.

Acquisition

The process by which one company takes over controlling interest or assets of another company.

Excess Land Allocation

Excess Land Allocation refers to the process of assigning a higher value than the book value to the land portion of real estate acquired, often based on its potential to generate more revenue than current use.