Question

Harley-Davidson Inc. produces motorcycles, motorcycle parts and related accessories and merchandise in the United States and...

Harley-Davidson Inc. produces motorcycles, motorcycle parts and related accessories and merchandise in the United States and internationally. It is headquartered in Milwaukee, Wisconsin.

Use the following information on Harley-Davidson and five other similar companies to value Harley-Davidson as of December 31, 2004.(answer in billions. round to 1 decimal) ANSWER IN BILLIONS ROUND TO 1 DECIMAL PLEASE

Harley-Davidson Inc. 2004 ($ millions) Price/earnings (x)
Net income $     889.77 Arctic Cat 16.9
Number of common shares, millions        294.31 Brunswick 17.8
Earnings before interest and tax $ 1,506.16 Polaris Industries 27.8
Tax rate 35.0% Marine Products 28.6
Book value of equity $ 3,218.47 Winnebago Industries 18.6
Book value interest-bearing debt $ 1,295.44
Total Sales $ 5,320.45
Total Assets $ 5,483.29

Homework Answers

Answer #1

Take the average PE ratio of the given 5 companies = (16.9+17.8+27.8+28.6+18.6)/5 = 21.94

(Note: Usually the comparable companies are researched and then weights are assigned accordingly to come up with a suitable ratio. Since no information is provided here, an average has been taken.)

Net income = 889.77 million

Equity valuation = 21.94*889.77 = 19,521.55 million or 19.5 billion

Value per share = equity value/shares O/S = 19,521.55/294.31 = $66.33

Enterprise Value = equity value + debt value = 19,521.55 + 1,295.44 = 20,816.99 million or 20.8 billion

(Note: EV is calculated as market value of equity + market value of debt - cash and cash equivalents - non-cash surplus assets. Book value of debt is given here so it has been used. Cash and cash equivalents etc are not provided in the question.)

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