Financial Management Assignment
Biowizard90
financial_management_assignment.docxVALUATION SECTION
Please value the following company under three different scenarios. The capital structure and WACC is the same under each scenario.
No Growth: This scenario is a typical ‘no growth’ scenario where there are some modest growth assumptions for the forecast period but long term expectations are that competition will eliminate excess profits resulting in a scenario where WACC = ROIC and growth for year 6 and beyond is expected to be 0%.
Growth: This scenario is a ‘growth’ scenario where there is robust revenue growth for the next five years expected and then year 6 and beyond is expected to have continued growth and will be able to maintain the competitive edge resulting in ROIC > WACC.
Harvesting: This scenario is characterized by declining revenue and reduced levels of NOPAT reinvestment. Residual value has a negative growth rate.
Develop and estimate of WACC for Boeing (BO) using the latest financial statements and market information.
Select Market Prices and Other Information
10 Year Treasury Bond Rate2.75
Current Default Risk Premium (over 10 Year Treasury
Bonds). Liquity Premium is zero.3.25
Equity Beta 1.20
Equity Market Risk Premium5.00
Current Stock Price55.00
Tax Rate40.00
Shares Outstanding25,000,000
Debt Outstanding (assume book value = market value)425,000,000
Cash and Marketable Securities5,000,000.00
GROWTH STRATEGY
Year123456
Forecast information
Last Year's Revenue $3,000,000,000 ($3 Billion)
Revenue Growth rate assumptions 3%3%3%2%2%2%
Operating Margin (including depreciation expense)12%12%12%11%11%10%
% of NOPAT invested in incremental Working Capital 3%3%3%2%2%
% of NOPAT invested in incremental Fixed Capital7%7%7%6%6%
Tax Rate40%40%40%40%40%40%
Residual Period (also known as continuing value period)
ROIC 20%
Growth Rate 2%
NO GROWTH STRATEGY
Year123456
Forecast information
Last Year's Revenue $3,000,000,000 ($3 Billion)
Revenue Growth rate assumptions 2%2%1%1%1%1%
Operating Margin (including depreciation expense)12%11%11%11%10%10%
% of NOPAT invested in incremental Working Capital 2%2%2%1%1%
% of NOPAT invested in incremental Fixed Capital5%5%5%4%4%
Tax Rate40%40%40%40%40%40%
Residual Period (also known as continuing value period)
ROIC = WACC
Growth Rate 0%
Harvesting or Negative Growth Strategy
Year123456
Forecast information
Last Year's Revenue $3,000,000,000 ($3 Billion)
Revenue Growth rate assumptions 2%2%1%1%1%1%
Operating Margin (including depreciation expense)12%11%11%11%10%10%
% of NOPAT invested in incremental Working Capital 2%2%2%1%1%
% of NOPAT invested in incremental Fixed Capital5%5%5%4%4%
Tax Rate40%40%40%40%40%40%
Residual Period (also known as continuing value period)
ROIC = WACC
Growth Rate -2%
FORECAST PERIOD ASSUMPTIONS
FORECAST PERIOD ASSUMPTIONS
FORECAST PERIOD ASSUMPTIONS
