Intermediate finance 2
AmazingExpert (Not rated)
(Not rated)
| Chapter 11 | |||||
| Inputs | Actual | Projected | Projected | Projected | Projected |
| 2011 | 2012 | 2013 | 2014 | 2015 | |
| Sales Growth Rate | 15% | 10% | 6% | 6% | |
| Costs / Sales | 72% | 72% | 72% | 72% | 72% |
| Depreciation / Net PPE | 10% | 10% | 10% | 10% | 10% |
| Cash / Sales | 1% | 1% | 1% | 1% | 1% |
| Acct. Rec. / Sales | 10% | 10% | 10% | 10% | 10% |
| Inventories / Sales | 20% | 20% | 20% | 20% | 20% |
| Net PPE / Sales | 75% | 75% | 75% | 75% | 75% |
| Acct. Pay. / Sales | 2% | 2% | 2% | 2% | 2% |
| Accruals / Sales | 5% | 5% | 5% | 5% | 5% |
| Tax rate | 40% | 40% | 40% | 40% | 40% |
| Weighted average cost of capital (WACC) | 10.5% | 10.5% | 10.5% | 10.5% | 10.5% |
| Income Statement for the Year Ending December 31 (Millions of Dollars) | |||||
| 2011 | |||||
| Net Sales | $ 800.0 | ||||
| Costs (except depreciation) | $ 576.0 | ||||
| Depreciation | $ 60.0 | ||||
| Total operating costs | $ 636.0 | ||||
| Earning before int. & tax | $ 164.0 | ||||
| Less interest | $ 32.0 | ||||
| Earning before taxes | $ 132.0 | ||||
| Taxes (40%) | $ 52.8 | ||||
| Net income before pref. div. | $ 79.2 | ||||
| Preferred div. | $ 1.4 | ||||
| Net income avail. for com. div. | $ 77.9 | ||||
| Common dividends | $ 31.1 | ||||
| Addition to retained earnings | $ 46.7 | ||||
| Number of shares (in millions) | 10 | ||||
| Dividends per share | $ 3.11 | ||||
| Balance Sheets for December 31 (Millions of Dollars) | |||||
| Assets | 2011 | Liabilities and Equity | 2011 | ||
| Cash | $ 8.0 | Accounts Payable | $ 16.0 | ||
| Marketable Securities | 20.0 | Notes payable | 40.0 | ||
| Accounts receivable | 80.0 | Accruals | 40.0 | ||
| Inventories | 160.0 | Total current liabilities | $ 96.0 | ||
| Total current assets | $ 268.0 | Long-term bonds | $ 300.0 | ||
| Net plant and equipment | 600.0 | Preferred stock | $ 15.0 | ||
| Total Assets | $ 868.0 | Common Stock (Par plus PIC) | $ 257.0 | ||
| Retained earnings | 200.0 | ||||
| Common equity | $ 457.0 | ||||
| Total liabilities and equity | $ 868.0 | ||||
| a. Forecast the parts of the income statement and balance sheets necessary to calculate free cash flow. | |||||
| Partial Income Statement for the Year Ending December 31 (Millions of Dollars) | |||||
| Actual | Projected | Projected | Projected | Projected | |
| 2011 | 2012 | 2013 | 2014 | 2015 | |
| Net Sales | $ 800.0 | ||||
| Costs (except depreciation) | $ 576.0 | ||||
| Depreciation | $ 60.0 | ||||
| Total operating costs | $ 636.0 | ||||
| Earning before int. & tax | $ 164.0 | ||||
| Partial Balance Sheets for December 31 (Millions of Dollars) | |||||
| Actual | Projected | Projected | Projected | Projected | |
| Operating Assets | 2011 | 2012 | 2013 | 2014 | 2015 |
| Cash | $ 8.0 | ||||
| Accounts receivable | $ 80.0 | ||||
| Inventories | $ 160.0 | ||||
| Net plant and equipment | $ 600.0 | ||||
| Operating Liabilities | |||||
| Accounts Payable | $ 16.0 | ||||
| Accruals | $ 40.0 | ||||
| b. Calculate free cash flow for each projected year. Also calculate the growth rates of free cash flow each year to ensure that there is constant growth (i.e., the same as the constant growth rate in sales) by the end of the forecast period. | |||||
| Actual | Projected | Projected | Projected | Projected | |
| Calculation of FCF | 2011 | 2012 | 2013 | 2014 | 2015 |
| Operating current assets | |||||
| Operating current liabilities | |||||
| Net operating working capital | |||||
| Net PPE | |||||
| Net operating capital | |||||
| NOPAT | |||||
| Investment in operating capital | na | ||||
| Free cash flow | na | ||||
| Growth in FCF | na | ||||
| Growth in sales | |||||
| c. Calculate operating profitability (OP=NOPAT/Sales), capital requirements (CR=Operating capital/Sales), and return on invested capital (ROIC=NOPAT/Operating capital at beginning of year). Based on the spread between ROIC and WACC, do you think that the company will have a positive market value added (MVA= Market value of company - book value of company = Value of operations - Operating capital)? | |||||
| Actual | Projected | Projected | Projected | Projected | |
| 2011 | 2012 | 2013 | 2014 | 2015 | |
| Operating profitability (OP=NOPAT/Sales) | |||||
| Capital requirement (CR=Operating capital/Sales) | |||||
| Return on invested capital (ROIC=NOPAT/Operating capital at start of year) | na | ||||
| Weighted average cost of capital (WACC) | na | ||||
| Spread between ROIC and WACC | na | ||||
| d. Calculate the value of operations and MVA. (Hint: first calculate the horizon value at the end of the forecast period, which is equal to the value of operations at the end of the forecast period. Assume that the annual growth rate beyond the horizon is 6 percent.) | |||||
| Actual | Projected | Projected | Projected | Projected | |
| 2011 | 2012 | 2013 | 2014 | 2015 | |
| Free cash flow | |||||
| Long-term constant growth in FCF | |||||
| Weighted average cost of capital (WACC) | 10.5% | 10.5% | 10.5% | 10.5% | 10.5% |
| Horizon value | |||||
| FCF + horizon value | |||||
| Value of operations (PV of FCF + HV) | |||||
| Operating capital | |||||
| Market value added (MVA=Market value of company - book value of company = Value of operations - Operating capital) | |||||
| e. Calculate the price per share of common equity as of 12/31/2009. | |||||
| Actual | |||||
| 2011 | |||||
| Value of Operations | |||||
| Plus Value of Mkt. Sec. | |||||
| Total Value of Company | |||||
| Less Value of Debt | |||||
| Less Value of Pref. | |||||
| Value of Common Stock | |||||
| Number of shares | |||||
| Price per share | |||||
11 years ago
Intermediate finance 2 A+ Tutorial Use as Guide
NOT RATED
Purchase the answer to view it
intermediate_finance_2.xlsx
