fm4, exercises pdf

Sales growth 10% Current assets/Sales 15% Current liabilities/Sales 8% Net fixed assets/Sales 77% Costs of goods sold/Sales 50% Sales, general and administrative expenses 200 <-- Added Depreciation rate 10% Interest rate on debt 10.00% Interest paid on cash & marketable securities 8.00% Tax rate 40% Dividend payout ratio 40% Year 0 1 2 3 Income statement Sales 1,000 1,100 1,210 1,331 Costs of goods sold (500) (550) (605) (666) SG&A (200) (200) (200) Interest payments on debt (32) (32) (32) (32) Interest earned on cash & marketable securities 6 6 5 5 Depreciation (100) (117) (137) (161) Profit before tax 374 207 241 277 Taxes (150) (83) (96) (111) Profit after tax 225 124 145 166 Dividends (90) (50) (58) (67) Retained earnings 135 75 87 100 Balance sheet Cash and marketable securities 80 71 65 63 Current assets 150 165 182 200 Fixed assets At cost 1,070 1,264 1,486 1,740 Depreciation (300) (417) (554) (715) Net fixed assets 770 847 932 1,025 Total assets 1,000 1,083 1,178 1,288 Current liabilities 80 88 97 106 Debt 320 320 320 320 Stock 450 450 450 450 Accumulated retained earnings 150 225 311 411 Total liabilities and equity 1,000 1,083 1,178 1,288 Year 0 1 2 3 Free cash flow calculation Profit after tax 124 145 166 Add back depreciation 117 137 161 Subtract increase in current assets (15) (17) (18) Add back increase in current liabilities 8 9 10 Subtract increase in fixed assets at cost (194) (222) (254) Add back after-tax interest on debt 19 19 19 EXERCISE 2

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Sales growth 10%

Current assets/Sales 15%

Current liabilities/Sales 8%

Net fixed assets/Sales 77%

Costs of goods sold/Sales 50%

Sales, general and administrative expenses 200
Subtract after-tax interest on cash & mkt. securities (4) (3) (3)

Free cash flow 56 68 81

Valuing the firmWeighted average cost of capital 20%

Year 0 1 2 3

FCF 56 68 81

Terminal value

Total 56 68 81

NPV of row 61 709
600 -1,412

Data table: Value as function 536 0% 3% 6%

of SG&A and sales growth 0 918 1,022 1,172

50 753 844 973

100 589 666 775

150 425 487 577

200 260 309 379

250 96 131 180

300 nmf nmf nmf

350 nmf nmf nmf

400 nmf nmf nmf

450 nmf nmf nmf

500 nmf nmf nmf

550 nmf nmf nmf

600 nmf nmf nmf

-2,000
4 5

1,464 1,611

(732) (805)

(200) (200)

(32) (32)

5 5

(189) (220)

317 359

(127) (144)

190 215

(76) (86)

114 129

65 72

220 242

2,031 2,364

(904) (1,124)

1,127 1,240

1,412 1,553

117 129

320 320

450 450

525 654

1,412 1,553

4 5

190 215

189 220

(20) (22)

11 12

(291) (333)

19 19

EXERCISE 2
(3) (3)

94 108

4 5

94 108

1,191
9% 12% 15%

1,403 1,807 2,696

1,173 1,524 2,294

944 1,240 1,892

715 957 1,490

486 674 1,088

257 391 686

28 108 283

nmf nmf nmf

nmf nmf nmf

nmf nmf nmf

nmf nmf nmf

nmf nmf nmf

nmf nmf nmf

SG&A