Best Buy

Year 2

Year 1

Income statement

Net sales

15,326

12,494

Cost of goods

12,267

10,101

Gross profit

3,059

2,393

Selling general & administrative expense

2,251

1,728

Depreciation & amortization expense

167

103

Income before tax

641

562

Income tax expense

245

215

Net income

396

347

Outstanding shares

208

200

RATIOS

Sales growth

22.67%

Gross Profit Margin

19.96%

Selling General & Administrative Exp / Sales

14.69%

DEPRECIATION (depn exp / pr yr PPE gross)

15.28%

Tax (Inc Tax / Pre-tax inc)

38.22%

BALANCE SHEET	Year 2	Year 1
Cash	746	751
Receivables	313	262
Inventories	1,767	1,184
Other	102	41
Total current assets	2,928	2,238
Property, plant & equipment	1,987	1,093
Accumulated depreciation	543	395
Net property & equipment	1,444	698
Other assets	466	59
Total assets	4,838	2,995
Accounts payable & accrued liabilities	2,473	1,704
Short-term debt & cmltd	114	16
Income taxes	127	65
Total current liab	2,714	1,785
Long term liabilities	122	100
Long term debt	181	15
Total long-term liabilities	303	115
Common stock	20	20
Capital surplus	576	247
Retained earnings	1,225	828
OTHER EQUITIES
Shareholder equity	1,821	1,095
Total liabilities & net worth	4,838	2,995
RATIOS
AR turn	48.96	47.69
INV turn	6.94	8.53
AP turn	4.96	5.93
Tax Pay (Tax pay / tax exp)	51.84%	30.23%
FLEV	2.66	2.74
Div/sh	$0.00	$0.00
CAPEX	1029	416
CAPEX/Sales	6.71%	3.33%

Using te residual income model, prepare a valuation of the common stock of Best Buy as of Year 2 under the following assumptions (use Exhibit 9.6 as an example): a. Forecast horizon of five years (years 3 - 7) b, Sales growth of 10% for Best Buy per year over the forecast period and 3.5% thereafter (terminal year). c. All financial ratios remain at Year 2 levels d. Cost of equity capital is 12.5%. All tasks should be answered using excel. You may want to copy and paste financial information into the template file to be able to link cells to the financial model. Using te residual income model, prepare a valuation of the common stock of Best Buy as of Year 2 under the following assumptions (use Exhibit 9.6 as an example): a. Forecast horizon of five years (years 3 - 7) b, Sales growth of 10% for Best Buy per year over the forecast period and 3.5% thereafter (terminal year). c. All financial ratios remain at Year 2 levels d. Cost of equity capital is 12.5%. All tasks should be answered using excel. You may want to copy and paste financial information into the template file to be able to link cells to the financial model