Corporation Valuation

Use the following data to calculate MicroDrives Horizon Value, Value of Operations, and Estimated intrinsic Stock Price given below in figure 12-3(image). Show all calculations on a separate sheet of paper.

Formula for calculating Horizon Value, Value of Operations, and Estimated intrinsic Stock Price is given in the figure 12-3(image)

Figure 12-1
MicroDrives Most Recent Financial Statements (Millions, Except for Per Share Data)
INCOME STATEMENTS			BALANCE SHEETS
	2012	2013	Assets		2012	2013
Net sales	$ 4,760	$ 5,000	Cash		$ 60	$ 50
COGS (excl. depr.)	3,560	3,800	ST Investments		40	-
Depreciation	170	200	Accounts receivable		380	500
Other operating expenses	480	500	Inventories		820	1,000
EBIT	$ 550	$ 500	Total CA		$ 1,300	$ 1,550
Interest expense	100	120	Net PP&E		1,700	2,000
Pre-tax earnings	$ 450	$ 380	Total assets		$ 3,000	$ 3,550
Taxes (40%)	180	152
NI before pref. div.	$ 270	$ 228	Liabilities and equity
Preferred div.	8	8	Accounts payable		$ 190	$ 200
Net income	$ 262	$ 220	Accruals		280	300
			Notes payable		130	280
Other Data			Total CL		$ 600	$ 780
Common dividends	$48	$50	Long-term bonds		1,000	1,200
Addition to RE	$214	$170	Total liabilities		$ 1,600	$ 1,980
Tax rate	40%	40%	Preferred stock		100	100
Shares of common stock	50	50	Common stock		500	500
Earnings per share	$5.24	$4.40	Retained earnings		800	970
Dividends per share	$0.96	$1.00	Total common equity		$ 1,300	$ 1,470
Price per share	$40.00	$27.00	Total liabs. & equity		$ 3,000	$ 3,550

Figure 12-3 MicroDrive's Forecast of Operations for the Selected Scenario (Millions of Dollars, Except for Per Share Data Status Quo anel A Inputs Forecast 2013 2012 A1. Operating Ratios 2013 2014 2015 2016 2017 5% 15%6 5% 10% 8% 7% 5% Sales growth rate COGs (excl. depr.) Sales 76%% 75% 76% 76% 76% 76% 76%% Depreciation Net PP&E 9%%. 10%% 10% 10% 10% 10% 10% other op. exp Sales 10% 10% 10% 10% 10% 10% 10% Cash Sales 1% 19% 1% 1% 1% 1% 1%% Acc. rec. Sales 8%. 8% 10% 10% 10% 10% 10% Inventory Sales 15% 17%6 20% 20% 20% 20% 20% Net PP&E Sales 33 36%% 40% 40% 40% 40% 40%o Acc. pay. Sales 40% 49% 4% 40% 4% 4% 42% Accruals Sales 7 60% 6% 6% 6% 6% 69% Tax rate 40 40 40 40% 40% 40% 40% Panel B: Results Actual Forecast B1. Sales Revenues 2013 2014 2015 2016 2017 Net sales 5.000 5,500 5,940 6,356 6,674 B2. Operating Assets and operating Liabilities 550 $55 $59 $64. $67 Cash $500 $550 $594. $636 $667 Accounts receivable $1,000 $1,100 $1,188 $1,271 $1,335 Inventories S2,000 $2,200 $2,376 $2,542 $2,669 Net PP&E $200 $220 $238 $254. $267 Accounts payable 356 Accruals 3000 330 381 400 B3. Operating Incom COGS (excl. depr.) S3,800 $4,180 $4,514 $4,830 $5,072 $200 $220 $238 $254 $267 Depreciation S500 $550 $594 $636 $667 Other operating expenses S500 $550 $594 $636 $667 EBIT Net operating profit after taxes 356 300 330 381 400 B Free Cash Flows Net operating working capital S1,050 $1,155 $1,247 $1,335 $1,401 Total operating capital 53,050 $3,355 $3,623 $3,877 $4,071 FCF tal S260 $25 128 207 NOPAT A o 88 ca B5. Estimated Intrinsic Value Target WACC 11.0% 1 1.0%% 11.00% 11.0% Return on invested capital 9.8%6 9.8%% 9.80% 9.8% 9.8%% 252% 45.1% 61.70% Growth in FCF Horizon Value Value of operations FCF. (1+ HV. Estimated total intrinsic value 2018 WACC gL) All debt Value of operations Present value of HV Estimated intrinsic value of equity Present value of E Number of shares Value of operations Estimated intrinsic stock price 2018 5%. 76%. 10%. 10%. 1% 10%. 20%. 40%. 4%. 6 40% 2018 7,007 $70 $701 $1,401 $2,803 $280 420 $5,326 $280 $701 $701 420 $1,472 $4,274 217 11.09% 9.8%%. 5.0% Figure 12-3 MicroDrive's Forecast of Operations for the Selected Scenario (Millions of Dollars, Except for Per Share Data Status Quo anel A Inputs Forecast 2013 2012 A1. Operating Ratios 2013 2014 2015 2016 2017 5% 15%6 5% 10% 8% 7% 5% Sales growth rate COGs (excl. depr.) Sales 76%% 75% 76% 76% 76% 76% 76%% Depreciation Net PP&E 9%%. 10%% 10% 10% 10% 10% 10% other op. exp Sales 10% 10% 10% 10% 10% 10% 10% Cash Sales 1% 19% 1% 1% 1% 1% 1%% Acc. rec. Sales 8%. 8% 10% 10% 10% 10% 10% Inventory Sales 15% 17%6 20% 20% 20% 20% 20% Net PP&E Sales 33 36%% 40% 40% 40% 40% 40%o Acc. pay. Sales 40% 49% 4% 40% 4% 4% 42% Accruals Sales 7 60% 6% 6% 6% 6% 69% Tax rate 40 40 40 40% 40% 40% 40% Panel B: Results Actual Forecast B1. Sales Revenues 2013 2014 2015 2016 2017 Net sales 5.000 5,500 5,940 6,356 6,674 B2. Operating Assets and operating Liabilities 550 $55 $59 $64. $67 Cash $500 $550 $594. $636 $667 Accounts receivable $1,000 $1,100 $1,188 $1,271 $1,335 Inventories S2,000 $2,200 $2,376 $2,542 $2,669 Net PP&E $200 $220 $238 $254. $267 Accounts payable 356 Accruals 3000 330 381 400 B3. Operating Incom COGS (excl. depr.) S3,800 $4,180 $4,514 $4,830 $5,072 $200 $220 $238 $254 $267 Depreciation S500 $550 $594 $636 $667 Other operating expenses S500 $550 $594 $636 $667 EBIT Net operating profit after taxes 356 300 330 381 400 B Free Cash Flows Net operating working capital S1,050 $1,155 $1,247 $1,335 $1,401 Total operating capital 53,050 $3,355 $3,623 $3,877 $4,071 FCF tal S260 $25 128 207 NOPAT A o 88 ca B5. Estimated Intrinsic Value Target WACC 11.0% 1 1.0%% 11.00% 11.0% Return on invested capital 9.8%6 9.8%% 9.80% 9.8% 9.8%% 252% 45.1% 61.70% Growth in FCF Horizon Value Value of operations FCF. (1+ HV. Estimated total intrinsic value 2018 WACC gL) All debt Value of operations Present value of HV Estimated intrinsic value of equity Present value of E Number of shares Value of operations Estimated intrinsic stock price 2018 5%. 76%. 10%. 10%. 1% 10%. 20%. 40%. 4%. 6 40% 2018 7,007 $70 $701 $1,401 $2,803 $280 420 $5,326 $280 $701 $701 420 $1,472 $4,274 217 11.09% 9.8%%. 5.0%