12 Estimated Data for Traver-Dunlap Corporation 13 Forecast 14 1 2 3 15 Annual sales growth rate 20% 6% 6% 16 Operating profitability (NOPAT/Sales) 12% 10% 10% 17 Capital requirement (OpCap/Sales) 80% 80% 80% 18 Tax rate 35% 35% 35% 19 20 21 a. Use the data to forecast sales, net operating profit after taxes (NOPAT), total net operating capital (OpCap), free 22 cash flow (FCF), growth rate in FCF, and return on invested capital (ROIC) for the next three years. What is the FCF 23 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 24 does it compare with the 15% WACC? 25 26 Current Forecast Year 27 0 1 2 3 28 Sales $980 $1,176.00 $1,246.56 $1,321.35 29 Net operating profit after taxes $141.12 $124.66 $132.14 30 Total net operating capital $970 $1,126.80 31 FCF = NOPAT - Investment in Op Cap 32 Growth in FCF 33 ROIC = NOPAT/OpCap 34 35 36 37 38 b. What is the value of operations at Year 3, Vop,3? What is the current value of operations, Vop,0? How does the 39 value of operations at Year 0 compare with the total net operating capital at Year 3, and what might explain this 40 relationship? 41 42 Free cash flow at beginning of the constant growth phase (FCF3) = 43 Weighted average cost of capital (WACC) = 44 Constant growth rate (9.) = 45 HV, = Vop, 3 = 46 Present value of HV = 47 Present value of free cash flows = 48 Total value of operations at Year 0, Vop, o = 49 50 51 52 53 12 Estimated Data for Traver-Dunlap Corporation 13 Forecast 14 1 2 3 15 Annual sales growth rate 20% 6% 6% 16 Operating profitability (NOPAT/Sales) 12% 10% 10% 17 Capital requirement (OpCap/Sales) 80% 80% 80% 18 Tax rate 35% 35% 35% 19 20 21 a. Use the data to forecast sales, net operating profit after taxes (NOPAT), total net operating capital (OpCap), free 22 cash flow (FCF), growth rate in FCF, and return on invested capital (ROIC) for the next three years. What is the FCF 23 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 24 does it compare with the 15% WACC? 25 26 Current Forecast Year 27 0 1 2 3 28 Sales $980 $1,176.00 $1,246.56 $1,321.35 29 Net operating profit after taxes $141.12 $124.66 $132.14 30 Total net operating capital $970 $1,126.80 31 FCF = NOPAT - Investment in Op Cap 32 Growth in FCF 33 ROIC = NOPAT/OpCap 34 35 36 37 38 b. What is the value of operations at Year 3, Vop,3? What is the current value of operations, Vop,0? How does the 39 value of operations at Year 0 compare with the total net operating capital at Year 3, and what might explain this 40 relationship? 41 42 Free cash flow at beginning of the constant growth phase (FCF3) = 43 Weighted average cost of capital (WACC) = 44 Constant growth rate (9.) = 45 HV, = Vop, 3 = 46 Present value of HV = 47 Present value of free cash flows = 48 Total value of operations at Year 0, Vop, o = 49 50 51 52 53