Q No 2: As an analyst in the valuation team your job is to perform significant financial modeling and analysis. Your company is seeing a new sales strategy that require your input. The strategy will be effective for the upcoming 4 Years. If the company adopts the new strategy, sales will grow at the rate of 15% per year for three years. Other ratios such as: Asset turnover, gross margin, the capital structure and income tax will remain unchanged. However, depreciation would be applicable at 8% of net fixed assets at the starting of the year. Moreover, the target rate of return for the company is 12%. Additional financial information for current year is mentioned below: Income Statement Sales Gross Margin (15%) Admin., selling and Distribution expenses (7%) Profit before tax Таx (35%) Profit After Taxes 50,000 7,500 3,500 10,000 3,500 6,500 Balance Sheet Fixed Assets 17,000 Current Arcete 12 000
Q No 2: As an analyst in the valuation team your job is to perform significant financial modeling and analysis. Your company is seeing a new sales strategy that require your input. The strategy will be effective for the upcoming 4 Years. If the company adopts the new strategy, sales will grow at the rate of 15% per year for three years. Other ratios such as: Asset turnover, gross margin, the capital structure and income tax will remain unchanged. However, depreciation would be applicable at 8% of net fixed assets at the starting of the year. Moreover, the target rate of return for the company is 12%. Additional financial information for current year is mentioned below: Income Statement Sales Gross Margin (15%) Admin., selling and Distribution expenses (7%) Profit before tax Таx (35%) Profit After Taxes 50,000 7,500 3,500 10,000 3,500 6,500 Balance Sheet Fixed Assets 17,000 Current Arcete 12 000
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Q No 2: As an analyst in the valuation team your job is to perform significant financial modeling and
analysis. Your company is seeing a new sales strategy that require your input. The strategy will be effective
for the upcoming 4 Years. If the company adopts the new strategy, sales will grow at the rate of 15% per
year for three years. Other ratios such as: Asset turnover, gross margin, the capital structure and income tax
will remain unchanged. However, depreciation would be applicable at 8% of net fixed assets at the starting
of the year. Moreover, the target rate of return for the company is 12%. Additional financial information
for current year is mentioned below:
Income Statement
Sales
Gross Margin (15%)
Admin., selling and Distribution expenses (7%)
Profit before tax
50,000
7,500
3,500
10,000
3,500
6,500
Таx (35%)
Profit After Taxes
Balance Sheet
Fixed Assets
Current Assets
Equity
17,000
12,000
25,000
A) Determine value of business before adoption of new strategy?
B) What will be the incremental value and value of business after adoption of this new strategy?
C) Provide detailed comments should the company proceeds with this new strategy or Not?
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