a) (6 points) Beta Inc. has two lines of business, namely heavy truck manufacturing & sales, and truck rental. You are provided with market shares of top three companies in the two lines of business over time: e Market Share in Heavy Truck Manufacturing & Sales (Entries Are Market Share) Company 2002 2005 2008 2011 Alpha Inc. 25% 27% 26% 27% Beta Inc. 35% 33% 35% 34% Gamma Inc. 30% 28% 29% 27% Other companies 10% 12% 10% 12% e Market Share in Truck Rental (Entries Are Market Share) 20022 20% 2005 18% 2008 14% 15% 20112 12% 13% Company Alpha Inc. Beta Inc. Gamma Inc. Delta Inc. Sigma Inc. Other companies 11% 12% e 10% 14% e 56% 11% 60% 18% 57% 59% Question: Given the information above, suggest whether (i) heavy truck manufacturing & sales, or (ii) truck rental is a more attractive industry, from the perspective of Beta Inc. Provide two reasons to support your answer. b) You are further provided with the following table for assumptions of Beta Inc.'s financial forecast and valuation. Assumptions for financial forecast and valuation of Beta Inc. Revenue (annual growth rate) Operating expense (% of revenue) Tax rate on operating income Operating current assets % of revenue) Operating current liabilities (% of revenue) Net fixed assets (% of revenue) Book D/CD+E) 2013Fe 10.0% 88.0% 25.0% 8.5% 2.8% 18.5% 10.0% 2014F 8.0% 88.5% 25.0% 9.0% 3.0% 18.0% 10.0% 2015F 5.0% 89.0% 25.0% 9.5% 3.0% 18.0% 10.0% 2016F 5.0% 89.0% 25.0% 9.5% 3.0% 18.0% 10.0% (12 points) Given the forecast assumptions above, forecast free cash flows in 2013-16 and complete the valuation work space below. (Note: Use your answer in Question 1 for your calculation of net work capital, net fixed assets, and net operating assets in 2012.) 2013F 2014F 2015F 2016Fe 2012 2,420.01 Forecast FCF Operating revenue - Operating expense Operating income (before tax) .) Tax on operating income NOPLAT 6. Change in net working capital .) Capital expenditure, net of depr. expense Free cash flow le Net working capital (+) Operating current assets (.) Operating current liabilities le le Net fixed assets le Net operating assets RNOA Net financial obligations (D) Book common shareholders' equity (E) (6 points) Suppose you are at the beginning of 2013. Given your forecast above and a WACC of 12%, calculate the equity value of Beta Inc. and complete the work space below.' 2013F 2014F 2015F 2016F Free cash flow WACC 12% 12 PV of FCF (2013-2015) PV of terminal value Operating value- Net financial obligations in 2012 Shareholders' value a) (6 points) Beta Inc. has two lines of business, namely heavy truck manufacturing & sales, and truck rental. You are provided with market shares of top three companies in the two lines of business over time: e Market Share in Heavy Truck Manufacturing & Sales (Entries Are Market Share) Company 2002 2005 2008 2011 Alpha Inc. 25% 27% 26% 27% Beta Inc. 35% 33% 35% 34% Gamma Inc. 30% 28% 29% 27% Other companies 10% 12% 10% 12% e Market Share in Truck Rental (Entries Are Market Share) 20022 20% 2005 18% 2008 14% 15% 20112 12% 13% Company Alpha Inc. Beta Inc. Gamma Inc. Delta Inc. Sigma Inc. Other companies 11% 12% e 10% 14% e 56% 11% 60% 18% 57% 59% Question: Given the information above, suggest whether (i) heavy truck manufacturing & sales, or (ii) truck rental is a more attractive industry, from the perspective of Beta Inc. Provide two reasons to support your answer. b) You are further provided with the following table for assumptions of Beta Inc.'s financial forecast and valuation. Assumptions for financial forecast and valuation of Beta Inc. Revenue (annual growth rate) Operating expense (% of revenue) Tax rate on operating income Operating current assets % of revenue) Operating current liabilities (% of revenue) Net fixed assets (% of revenue) Book D/CD+E) 2013Fe 10.0% 88.0% 25.0% 8.5% 2.8% 18.5% 10.0% 2014F 8.0% 88.5% 25.0% 9.0% 3.0% 18.0% 10.0% 2015F 5.0% 89.0% 25.0% 9.5% 3.0% 18.0% 10.0% 2016F 5.0% 89.0% 25.0% 9.5% 3.0% 18.0% 10.0% (12 points) Given the forecast assumptions above, forecast free cash flows in 2013-16 and complete the valuation work space below. (Note: Use your answer in Question 1 for your calculation of net work capital, net fixed assets, and net operating assets in 2012.) 2013F 2014F 2015F 2016Fe 2012 2,420.01 Forecast FCF Operating revenue - Operating expense Operating income (before tax) .) Tax on operating income NOPLAT 6. Change in net working capital .) Capital expenditure, net of depr. expense Free cash flow le Net working capital (+) Operating current assets (.) Operating current liabilities le le Net fixed assets le Net operating assets RNOA Net financial obligations (D) Book common shareholders' equity (E) (6 points) Suppose you are at the beginning of 2013. Given your forecast above and a WACC of 12%, calculate the equity value of Beta Inc. and complete the work space below.' 2013F 2014F 2015F 2016F Free cash flow WACC 12% 12 PV of FCF (2013-2015) PV of terminal value Operating value- Net financial obligations in 2012 Shareholders' value