Freddie Corp.'s balance sheets and income statements for 2017 and 2018 have been provided to you for analysis. Management has requested that you calculate and analyze the information listed below. Further, management wants to know if the growth Freddie has undergone is profitable for the company's shareholders. Calculations and Analysis to be performed: Spread Freddie's balance sheets and income statements (using Excel). a. b. Calculate NOPAT for 2017 and 2018. Calculate Net Working Capital (NWC), Net Operating Working Capital (NOWC) and Total Operating Capital ("Operating Capital") for 2017 and 2018 (use at least two (2) different methods to calculate Operating Capital). C. d. Calculate Free Cash Flow (FCF) for 2018. Assume that capital expenditures are equal to year-over-year increases in Gross Fixed Assets. Calculate ROA (using DuPont), ROE (using DuPont) and ROIC (a/k/a RONA) for 2017 and 2018. e. Calculate Freddie's Capital Structure at the end of 2018 assuming the book values of the company's f. debt and equity approximate their market values on those dates. Estimate Freddie's WACC at the end of 2018. B. Was Economic Value Added (EVA) during 2017 or 2018 (assume the 2018 WACC applies to 2017 as well). h. Assuming Freddie's Free Cash Flows are projected to grow by 12.0%, 8.0%, 6.0% and 4.0% in the period 2019 through 2022, respectively, and that the firm's L-T sustainable annual growth rate will be 2.0% thereafter. estimate Freddie's intrinsic value per share for its common stock at the end of 2018. i. Freddie's management has stated its desire to change the capital structure of the company at the end of 2018 by retiring debt to lower the Debt Ratio to 40%. The company's investment banker has informed the company that lowering its debt level will lower Freddie's pre-tax borrowing rate by at least 125 basis points. If Freddie implemented this proposed capital j. structure at 12/31/18, how would the company's WACC change? What about its intrinsic value per share? MAKE SURE YOU USE AT LEAST 4 DECIMAL PLACES IN ALL CALCULATIONS YOUR ANALYSIS AND ANSWWERS MUST BE PRESENTED IN A PROFESSIONAL (AND EASY TO FOLLOWI) FORMAT Freddie Corp. Balance Sheets at December 31, As % of Total Assets Millions of USD 2017 2018 2017 2018 Assets 3,690 13.2% 14.3% 2,750 Cash and Equivalents 1.9% 3.5% 900 400 Marketable Securities 16.6% 17.9% 3,450 4,620 Accounts Receivable 5,990 23.3% Inventories 4,890 23.5% Total Current Assets 55.2% 59.1% 11,490 15,200 Gross Plant and Equipment 23,240 105.3% 27,110 111.7% Accumulated Depreciation 14,830 71.3% 67.9% 17,470 Net Plant and Equipment 8,410 9,640 40.4% 37.5% Intangible Assets 900 900 4.3% 3.5% Total Assets 20,800 25,740 100.0% 100.0% Liabilities and Equity Accounts Payable 2,160 2,350 10.4% 9.1% Notes Payable 1,480 1,950 7.1% 7,6% Accruals 3,200 3,730 15.4% 14,5% Total Current Liabilities 6,840 8,030 32.9% 31.2% Long-Term Debt 8,000 8,750 38.5% 34.0% Total Liabilities 14,840 16,780 71.3% 65.2% Common Stock (100M shares) 1,000 1,000 4.8% 3.9% APIC 760 760 3.7% 3.0% Retained Earnings Total Equity 4,200 7,200 20.2% 28.0% 5,960 8,960 28.7% 34.8% Total Liabilities and Equity 20,800 25,740 100.0% 100.0% Note - An analysis of Freddie's business operations has determined that the company must maintain cash balances equal to 0.5% of its total annual revenues. This amount of cash is all that is necessary to operate the business effectively and efficiently. Freddie Corp. Income Statements for years ended December 31, as a % of Net Sales Millions of USD 2018 2017 2018 2017 100.00% 100.00% 65,200.0 74,900.0 Net Sales 70.28% 71.93% 52,640.0 Cost of Sales 46,900.0 29.72% 28.07% Gross Profit 18,300.0 22,260.0 Less Other Costs: Rent 1,600.0 2,000.0 2.45% 2.67% Salaries 2,500.0 2,950.0 3.83% 3.94% S, G & A Expenses 8,440.0 8,500.0 12.94% 11.35% Depreciation & Amortization 1,980.0 2,640.0 3.04% 3.52% Interest Income (60.0) (100.0) -0.09% -0.13% Interest Expense 1,130.0 1,270.0 1.73% 1.70% Total Costs 15,590.0 17,260.0 23.91% 23.04% Earnings Before Taxes (EBT) 2,710.0 5,000.0 4.16% 6.68% Income Taxes 1,084.0 2,000.0 1.66% 2.67% Net Income 1,626.0 3,000.0 2.49% 4.01% Note -Freddie's beta (B) was 1.25 at 12/31/18. Research has revealed that the 10 year T-Bond rate was 3.75% on 12/31/18 while the 60+ year average returns on the equity market and L-T Federal bonds have been 11.50% and 3.75%, respectively. Further, assume the firm's implied (average) cost of debt in 2018 is reflective of the firm's marginal borrowing costs in the future. Freddie Corp.'s balance sheets and income statements for 2017 and 2018 have been provided to you for analysis. Management has requested that you calculate and analyze the information listed below. Further, management wants to know if the growth Freddie has undergone is profitable for the company's shareholders. Calculations and Analysis to be performed: Spread Freddie's balance sheets and income statements (using Excel). a. b. Calculate NOPAT for 2017 and 2018. Calculate Net Working Capital (NWC), Net Operating Working Capital (NOWC) and Total Operating Capital ("Operating Capital") for 2017 and 2018 (use at least two (2) different methods to calculate Operating Capital). C. d. Calculate Free Cash Flow (FCF) for 2018. Assume that capital expenditures are equal to year-over-year increases in Gross Fixed Assets. Calculate ROA (using DuPont), ROE (using DuPont) and ROIC (a/k/a RONA) for 2017 and 2018. e. Calculate Freddie's Capital Structure at the end of 2018 assuming the book values of the company's f. debt and equity approximate their market values on those dates. Estimate Freddie's WACC at the end of 2018. B. Was Economic Value Added (EVA) during 2017 or 2018 (assume the 2018 WACC applies to 2017 as well). h. Assuming Freddie's Free Cash Flows are projected to grow by 12.0%, 8.0%, 6.0% and 4.0% in the period 2019 through 2022, respectively, and that the firm's L-T sustainable annual growth rate will be 2.0% thereafter. estimate Freddie's intrinsic value per share for its common stock at the end of 2018. i. Freddie's management has stated its desire to change the capital structure of the company at the end of 2018 by retiring debt to lower the Debt Ratio to 40%. The company's investment banker has informed the company that lowering its debt level will lower Freddie's pre-tax borrowing rate by at least 125 basis points. If Freddie implemented this proposed capital j. structure at 12/31/18, how would the company's WACC change? What about its intrinsic value per share? MAKE SURE YOU USE AT LEAST 4 DECIMAL PLACES IN ALL CALCULATIONS YOUR ANALYSIS AND ANSWWERS MUST BE PRESENTED IN A PROFESSIONAL (AND EASY TO FOLLOWI) FORMAT Freddie Corp. Balance Sheets at December 31, As % of Total Assets Millions of USD 2017 2018 2017 2018 Assets 3,690 13.2% 14.3% 2,750 Cash and Equivalents 1.9% 3.5% 900 400 Marketable Securities 16.6% 17.9% 3,450 4,620 Accounts Receivable 5,990 23.3% Inventories 4,890 23.5% Total Current Assets 55.2% 59.1% 11,490 15,200 Gross Plant and Equipment 23,240 105.3% 27,110 111.7% Accumulated Depreciation 14,830 71.3% 67.9% 17,470 Net Plant and Equipment 8,410 9,640 40.4% 37.5% Intangible Assets 900 900 4.3% 3.5% Total Assets 20,800 25,740 100.0% 100.0% Liabilities and Equity Accounts Payable 2,160 2,350 10.4% 9.1% Notes Payable 1,480 1,950 7.1% 7,6% Accruals 3,200 3,730 15.4% 14,5% Total Current Liabilities 6,840 8,030 32.9% 31.2% Long-Term Debt 8,000 8,750 38.5% 34.0% Total Liabilities 14,840 16,780 71.3% 65.2% Common Stock (100M shares) 1,000 1,000 4.8% 3.9% APIC 760 760 3.7% 3.0% Retained Earnings Total Equity 4,200 7,200 20.2% 28.0% 5,960 8,960 28.7% 34.8% Total Liabilities and Equity 20,800 25,740 100.0% 100.0% Note - An analysis of Freddie's business operations has determined that the company must maintain cash balances equal to 0.5% of its total annual revenues. This amount of cash is all that is necessary to operate the business effectively and efficiently. Freddie Corp. Income Statements for years ended December 31, as a % of Net Sales Millions of USD 2018 2017 2018 2017 100.00% 100.00% 65,200.0 74,900.0 Net Sales 70.28% 71.93% 52,640.0 Cost of Sales 46,900.0 29.72% 28.07% Gross Profit 18,300.0 22,260.0 Less Other Costs: Rent 1,600.0 2,000.0 2.45% 2.67% Salaries 2,500.0 2,950.0 3.83% 3.94% S, G & A Expenses 8,440.0 8,500.0 12.94% 11.35% Depreciation & Amortization 1,980.0 2,640.0 3.04% 3.52% Interest Income (60.0) (100.0) -0.09% -0.13% Interest Expense 1,130.0 1,270.0 1.73% 1.70% Total Costs 15,590.0 17,260.0 23.91% 23.04% Earnings Before Taxes (EBT) 2,710.0 5,000.0 4.16% 6.68% Income Taxes 1,084.0 2,000.0 1.66% 2.67% Net Income 1,626.0 3,000.0 2.49% 4.01% Note -Freddie's beta (B) was 1.25 at 12/31/18. Research has revealed that the 10 year T-Bond rate was 3.75% on 12/31/18 while the 60+ year average returns on the equity market and L-T Federal bonds have been 11.50% and 3.75%, respectively. Further, assume the firm's implied (average) cost of debt in 2018 is reflective of the firm's marginal borrowing costs in the future