North Pacific Group (NPG) manufactures plumbing fixtures and other home improvement products that are sold in Home Depot and Wal-Mart as well as hardware stores. NPG has a solid reputation for providing value products, good quality, and a good price. The company has been approached by an investment banking firm representing a third company, Hawaii Inc. (HAI) that is interested in acquiring NPG. The acquiring firm (HAI) is a retailer of garden supplies; it sees the potential synergies of the combined firm and is willing to pay NPG shareholders $38 cash per share for their stock, which is greater than the current stock price; the stock has traded at about $35 in recent months. Summary financial information about NPG follows. .. NPG, Inc. .Selected Financial Information ….2013..20122013 Industry Average Cash..$79,919,778..$3,456,227 Accounts Receivable56,778,465..87,294,771 Inventory..39,665,416.59,883,645 Long-lived assets Gross book value..167,278,377143,778,377 Net book value100,620,809.95,887,302 ..Replacement cost.170,587,409..188,465,338 Liquidation Value.68,734,002.37,335,209 Current liabilities119,045,766120,995,274 Long-term debt.31,997,36437,885,302 Shareholder equity.125,941,33887,641,369 Capital Expenditures.23,500,00012,990,336 Sales.667,534,771.638,776,465 Cost of sales498,657,788477,491,001 Operating expense*102,667,355.134,765,229 Income Tax Rate38%.38%.38% Depreciation expense.18,766,49315,664,254 Dividends2,750,000..1,250,000 Year-end stock price..35.78..22.99 Number of Outstanding Shares.25,689,55422,763,554 Sales Multiplier..1.40 Free cash flow multiplier.8.80 Earnings multiplier.13.50 Cost of capital.5.2%5.2% Accounts Receivable Turnover..5.50 Inventory Turnover..8.60 Current ratio1.90 Quick ratio1.10 Cash flow from operations ratio.1.40 Free cash flow ratio..1.10 Gross margin percentage..33% Return on assets (net book value)19% Return on equity..28% Earnings per share$2.33 *operating expense includes depreciation Required 1. Evaluate NPG as a company using financial ratio analysis. Since the calculation of some ratios requires the averaging of balances, you may assume that the balances in 2011 are the same as those in 2012. 2. Develop a business valuation for 2013 using the market value method, the book value method, and the multiples-based methods. 3. Determine an estimated value of NPG using the discounted free cash flow method, assuming that the 2013 amount of free cash flow continues indefinitely. 4. Which of the methods would you use and why? 5. Is the HAI offer a good one? Why or why not? 6. What would be the effect of sustainability issues, if any, in the acquisition of NPG by HAI?