Hatfield Medical Supply (Millions of Dollars, Except per Share Data)

Balance Sheet	12/31/19		Income Statement	12/31/19
Cash	$ 90		Sales	$ 9,000.9
Accounts receivable	$ 1,260		Operating Costs	$ 8,100.9
Inventories	$ 1,440		Depreciation	$ 360.0
Total Current Assets	$ 2,790		EBIT	$ 540.0
Net fixed assets	$ 3,600		Interest	$ 144.0
Total Assets	$ 6,390		Pre-tax earnings	$ 396.0
			Taxes (25%)	$ 99.00
Accounts payable & accruals	$ 1,620		Net Income	$ 297.00
Line of credit	$ -
Total Current Liabilities	$ 1,620		Additional Information
Long-term debt	$ 1,800		Dividends	$ 100
Total Liabilities	$ 3,420		Additions to RE	$ 197
Common stock	$ 2,100		Common shares	50
Retained earnings	$ 870		EPS	$ 5.94
Total common equity	$ 2,970		DPS	$ 2.00
Total Liabilities & Equity	$ 6,390		Ending stock price	$ 40.00

	Hatfield	Industry
(Op. costs)/Sales	90%	88%
Depr./FA	10%	12%
Cash/Sales	1%	1%
Receivables/Sales	14%	11%
Inventories/Sales	16%	15%
Fixed assets/Sales	40%	32%
(Acc. Pay. & accr.)/Sales	18%	12%
Tax rate	25%	25%
Target WACC	10%	11%
Interest rate on debt	8%	7%
Profit margin (M)	3.30%	5.60%
Return on assets (ROA)	4.60%	9.50%
Return on equity (ROE)	10.00%	15.10%
Sales/Assets	1.41	1.69
Asset/Equity	2.15	1.59
Debt/TA	28.20%	16.90%
(Total Liabilities)/(Total Assets)	53.50%	37.30%
Times interest earned	3.80	11.70
P/E ratio	6.70	16.00
OP ratio: NOPAT/Sales	4.50%	6.10%
CR ratio: (Total op. capital)/Sales	53.00%	47.00%
ROIC	8.50%	13.00%

e. Use the following assumptions to answer the questions below: (1) Operating ratios remain unchanged. (2) Sales will grow by 11.1%, 8%, 5%, and 5% for the next four years. (3) The target weighted average cost of capital (WACC) is 10%. This is the No Change scenario because operations remain unchanged.

1. 1. For each of the next four years, forecast the following items: sales, cash, accounts receivable, inventories, net fixed assets, accounts payable & accruals, operating costs (excluding depreciation), depreciation, and earnings before interest and taxes (
   2. Using the previously forecasted items, calculate for each of the next four years the net operating profit after taxes (NOPAT), net operating working capital, total operating capital, free cash flow, (FCF), annual growth rate in FCF, and return on invested capital. What does the forecasted free cash flow in the first year imply about the need for external financing? Compare the forecasted ROIC compare with the WACC. What does this imply about how well the company is performing?
   3. Assume that FCF will continue to grow at the growth rate for the last year in the forecast horizon (Hint: 5%). What is the horizon value at 2023? What is the present value of the horizon value? What is the present value of the forecasted FCF? (Hint: use the free cash flows for 2020 through 2023). What is the current value of operations? Using information from the 2019 financial statements, what is the current estimated intrinsic stock price?