Leave the capital requirement ratios at 60% for all three years and thereafter, but increase the sales growth rates for Years 2, 3, and thereafter to 7%. What is the new value of operations? Did it go up or down relative to the other scenarios? Why did it change in this manner?
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Start with the partial model in Ch07 P26 Build a Model.xlsx on the textbook’s Web site.
Traver-Dunlap Corporation has a 15% weighted average cost of capital (WACC). Its most
recent sales were $980 million, and its total net operating capital is $970 million. The
following table shows estimates of the
expected to remain constant after the third year. Use this information to answer the following questions:
Estimated Base Case Data for Traver-Dunlap Corporation
Forecast Year
1 2 3
Annual sales growth rate 20% 6% 6%
Operating profitability (NOPAT/Sales) 12% 10% 10%
Capital requirement (OpCap/Sales) 80% 80% 80%
Tax rate 35% 35% 35%
Return the growth rates to the original values. Now suppose that the capital requirement ratio can be decreased to 60% for all three years and thereafter. What is the
new value of operations? Did it go up or down relative to the original base case?
Why did it change in this manner?
e. Leave the capital requirement ratios at 60% for all three years and thereafter, but
increase the sales growth rates for Years 2, 3, and thereafter to 7%. What is the new
value of operations? Did it go up or down relative to the other scenarios? Why did it
change in this manner?
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- Start with the partial model in Ch07 P26 Build a Model.xlsx on the textbook’s Web site. Traver-Dunlap Corporation has a 15% weighted average cost of capital (WACC). Its most recent sales were $980 million, and its total net operating capital is $970 million. The following table shows estimates of the forecasted growth rates, operating profitability ratios, and capital requirement ratios for the next three years. All of these ratios are expected to remain constant after the third year. Use this information to answer the following questions:a. Use the data to forecast sales, net operating profit after taxes (NOPAT), total net operating capital (OpCap), free cash flow (FCF), growth rate in FCF, and return on invested capital (ROIC) for the next 3 years. What is the FCF growth rate for Year 3, and how does it compare with the growth rate in sales? What is the ROIC for Year 3 and how does it compare with the 15% WACC?b. What is the value of operations at Year 3, Vop,3? What is the current…Chachagogo, Inc. is planning its operations for next year, and the CEO wants you to forecast the firm's additional funds needed (AFN). Data for use in your forecast are shown below. Based on the AFN equation, what is the AFN for the coming year? Last year's sales P200,000 Sales growth rate 40% Last year's current assets 65,000 Last year's noncurrent assets 70,000 Last year's profit margin 20.0% L last year's accounts payable P50,000 Last year's notes payable P25,000 Last year's accruals P20,000 Target plowback ratio 75.0% choices: -44,000 -50,000 -54,000 -16,000 -40,000 Jonson, Inc. is planning its operations for the coming year, and the CEO wants you to forecast the firm's additional funds needed (AFN). Data for use in the forecast are shown below. However, the CEO is concerned about the impact of a change in the retention ratio from 90% that was used in the past to 50%, which the firm's investment bankers have recommended. Seventy-five percent of the total assets are considered…Chua Chang & Wu Inc. is planning its operations for next year, and the CEO wants you to forecast the firm's additional funds needed (AFN). Data for use in your forecast are shown below. Based on the AFN equation, what is the AFN for the coming year? $200,000 40% $127,500 20.0% Last year's sales = So Sales growth rate=g Last year's total assets = Ao Last year's profit margin = PM -$11,000 O O O O O a. b.-$25,571 c.-$7,000 d.-$25,000 e. -$19,000 Last year's accounts payable Last year's notes payable Last year's accruals Target payout ratio $50,000 $15,000 $20,000 25.0%
- The Blazer Company's EPS last year, EPSo, was $1.50. Blazer expects sales to increase by 15% during the coming year. If Blazer has a degree of operating leverage equal to 1.25 and a degree of financial leverage equal to 3.50, then what is its expected EPS or EPS₁? Hint: First, find DTL where DTL= DOL x DFL. Note: This is a web appendix 14A topic. O $2.48 O $2.87 O $2.02 O $1.66Suppose that Gyp Sum Industries currently has the balance sheet shown below, and that sales for the year just ended were $10 million. The firm also has a profit margin of 25 percent, a retention ratio of 30 percent, and expects sales of $8 million next year. Assets Current assets Fixed assets Total assets Liabilities and Equity Additional funds needed Current liabilities $2,000,000 4,000,000 Long-term debt Equity $6,000,000 Total liabilities and equity $1,500,000 1,500,000 3,000,000 $6,000,000 If all assets and current liabilities are expected to shrink with sales, what amount of additional funds will Gyp Sum need from external sources to fund the expected growth? (Enter your answer in dollars not in millions. Negative amount should be indicated by a minus sign.)Pharoah Inc., is expected to grow at a rate of 20.000 percent for the next five years and then settle to a constant growth rate of 12.000 percent. The company recently paid a dividend of $2.35. The required rate of return is 17.000 percent.Excel Template(Note: This template includes the problem statement as it appears in your textbook. The problem assigned to you here may have different values. When using this template, copy the problem statement from this screen for easy reference to the values you’ve been given here, and be sure to update any values that may have been pre-entered in the template based on the textbook version of the problem.) (a) Find the present value of the dividends during the rapid-growth period if dividends grow at the same rate as the company. (Round dividends to 3 decimal places, e.g. 3.351. Round present value of dividends to 2 decimal places, e.g. 15.20.) Present value of dividends $Type your answer here
- Give typing answer with explanation and conclusion Consider a company that is projected to generate revenues of $104 million next year. Analysts expect revenues to grow at a 4.6% annual rate for the following two years (until the end of year 3) and then at a stable rate of 2.5% in perpetuity. If the company is expected to have a gross margin of 75%, operating margin of 35%, net margin of 25%, tax rate of 16.4%, and reinvestment rate of 34%, what is its expected free cash in four years from today? Answer in millions, rounded to one decimal placeGreen Caterpillar Garden Supplies Inc. has the following end-of-year balance sheet: Green Caterpillar Garden Supplies Inc. Balance Sheet For the Year Ended on December 31 Assets Liabilities Current Assets: Current Liabilities: Cash and equivalents Accounts payable Accounts receivable Accrued liabilities Inventories Total Current Assets Net Fixed Assets: Net plant and equipment (cost minus depreciation) Total Assets $150,000 400,000 350,000 $900,000 $2,100,000 $3,000,000 Notes payable Total Current Liabilities Long-Term Bonds Total Debt Common Equity Common stock Retained earnings Total Common Equity Total Liabilities and Equity $250,000 150,000 100,000 $500,000 1,000,000 $1,500,000 800,000 700,000 $1,500,000 $3,000,000Chua Chang & Wu Inc. is planning its operations for next year, and the CEO wants you to forecast the firm's additional funds needed (AFN). Data for use in your forecast are shown below. Based on the AFN equation, what is the AFN for the coming year? Last year's sales = So $200,000 Last year's accounts payable $50, 000 Sales growth rate = g 40% Last year's notes payable $15,000 Last year's total assets = A0 $127,500 Last year's accruals $20,000 Last year's profit margin = PM 20.0% Target payout ratio 25.0% a. - $19,000 b. -$11,000 c. - $25,571 d. -$7,000 e. - $25,000
- Scenario Karen Lamont is in the process of starting a new business and wants to forecast the first year's income statement and balance sheet. She has made several assumptions, which are shown below: • Lamont has projected the firm's sales will be $1 million in the first year. • She believes that the operating and gross ● profit margins will be 20 percent and 50 percent, respectively. For working capital, Lamont has estimated the following: Accounts receivable as a percentage of sales: 12% • Inventory as a percentage of sales: 15% Accounts payable as a percentage of sales: 7% ● • Accruals as a percentage of sales: 5% • A bank has agreed to loan her $300,000, consisting of $100,000 in short-term debt and $200,000 in long-term debt. Both loans will have an 8 percent interest rate. • The firm's tax rate will be 30 percent. ● ● • Lamont will need to purchase $350,000 in plant and equipment. Lamont will keep cash in the business that is equal to 5% of sales. Lamont will provide any other…Use the percentage of sales forecasting method to compute the additional financing needed by Lambrechts Specialty Shops, Inc. (LSS), if sales are expected to increase from a current level of $20 million to a new level of $25 million over the coming year. LSS expects earnings after taxes to equal $1 million over the next year. LSS intends to pay a $300,000 dividend next year. The current year balance sheet for LSS is as follows: Lambrechts Specialty Shops, Inc. Balance Sheet as of December 31, 20X3 Cash $1,000,000 Accounts payable $3,000,000 Accounts receivable 1,500,000 Notes payable 3,000,000 inventories 6,000,000 Long-term debt 2,000,000 Net fixed assets 3,000,000 Stockholders’ equity 3,500,000 Total Assets $11,500,000 Total…Use the percentage of sales forecasting method to compute the additional financing needed by Lambrechts Specialty Shops, Inc. (LSS), if sales are expected to increase from a current level of $20 million to a new level of $25 million over the coming year. LSS expects earnings after taxes to equal $1 million over the next year. LSS intends to pay a $300,000 dividend next year. The current year balance sheet for LSS is as follows: Lambrechts Specialty Shops, Inc. Balance Sheet as of December 31, 20X3 Cash $1,000,000 Accounts Payable $3,000,000 Accounts Receivable 1,500,000 Notes Payable 3,000,000 Inventories 6,000,000 Long-Term Debt 2,000,000 Net Fixed Assets 3,000,000 Stockholders’ Equity 3,500,00 Total Assets $11,500,000 Total Liabilities and Equity $11,500,000