HW 6 - QUESTION 1
Use the following Income Statement and Balance Sheet of firm X to answers Questions (1) & (2).
Sales in 2017 are expected to grow at a rate of 12.5% with respect to the values of 2016. Assume the company pays out 65% of its net income.
Use the percent sales method to forecast the value of next year’s stockholder’s equity for firm X.
HW 6 - QUESTION 2
Use the percent sales to estimate the firm’s net new financing for firm X.
HW 6 - QUESTION 3
Use the following information on Company Y and perform pro-forma financial modeling using a planned expansion method to answers question (3) and (4). To do this assume that the percentage values with respect to sales of the (i) costs except depreciation, (ii) cash and equivalents, (iii) accounts receivable, (iv) inventories, and (v) accounts payable will stay fixed at the values corresponding for 2016.
Assume also that income tax will remain at 35% of the Pretax Income.
Consider Company Y. This firm sells a product for which in 2016 the total market size was of 999000 units, of which Company Y owned a share of 25%.
Both, the total market size and Company Y’s market share are expected to grow at a 3% yearly rate for the next five years.
The price of the product is $114 in 2016 and is expected to remain at that price for the next years.
In 2016, the outstanding debt of Company Y is $700000, for which the company makes yearly interest payments of 10%. The executives of Company Y are considering making a significant capital investment in 2017 of $1900000 to purchase new machinery. The company plans to finance this investment with a 30-year loan that makes yearly interest payments equivalent to 7% of its principal. The principal is paid when the loan matures.
The following table summarizes the debt and interest payment of Company Y.
Currently, Company Y makes yearly expenditures on replacement capital investment of $50000. If the company makes the planned expansion it is decided the company will perform yearly expenditures on replacement capital investment of $225000. The current and the planned expenditures on replacement of capital investment will be financed by the company’s cash flow.
The following table indicates for 2016 Company Y’s values of i. opening book value, ii. capital investment, iii. depreciation, and iv. closing book value. The Table also indicates the 2017-2018 forecast values of capital depreciation if the planned expansion were to occur in 2017.
The following table contains Company Y’s income statement.
The following table contains Company Y’s balance sheet.
Before making any adjustments to balance Total Assets with Total Liabilities and Equity,
what is Company Y’s forecast value of Total Liabilities and Equity for 2017?
HW 6 - QUESTION 4
How much are the net new financing for Company Y’s on 2016?
HW 7 - QUESTION 1
Firm X is considering performing a considerable investment in year 2017. Use the following Pro-Forma Financial Statements for 2017-2021 to forecast the future Free Cash Flow and estimated the value of firm X from performing these investments.
What is the forecast value for Free Cash Flows of Firm X on 2017?
HW 7 - QUESTION 2
Use the following information to answer Questions 2-6.
Consider the following forecasts for 2017-2021 of the Future Cash Flows, EBITDA and Future Interest Tax Shield for Firm X if the expansion were not to occur. Assume that the EBITDA Multiple is 8.
Assume a discount factor of 9% for the Free Cash Flows and the Continuation Value, and 9% for the Interest Tax Shield.
What is the Present Value (at December 2016) of the Free Cash Flows forecast of Firm X
if the firm where not to do the expansion?
HW 7 - QUESTION 3
What is the Present Value (at December 2016) of the Continuation Value forecast of Firm X if the firm where not to do the expansion?
HW 7 - QUESTION 4
What is the Present Value (at December 2016) of the Interest Tax Shield forecast of Firm X if the firm where not to do the expansion?
HW 7 - QUESTION 5
What is the Firm Value (at December 2016) of Firm X if the firm where not to do the expansion?
HW 7 - QUESTION 6
True or False: If the Value of Firm X (at December 2016) of doing the expansion is estimated to be $146936194, Firm X should do the expansion (according to the NPV of the expansion).
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