hi I need those questions about the estimate of cost of capital and expansion scenario answered as soon as possible please thank you for your help
-- - ---- - - -- - - -- - - - - - - - - --- --- i) PROTECTED VIEW Be carefulfiles from the Internet can contain viruses. Unless you need to edit, it's safer to stay in Protected View Enable Editing 1 . . . . . . . . . . . . . . . . 2 . . . . . . 3 . . . . . 4 . . . . . .5 . . . . . .6 . . . . . . 7 . . . Real Farm Inc. Company History: Real Farm Inc. is a retail chain founded by Jacques Bloom in 1903 as a family business in Wallingford, CT. Since the foundation, the company has experienced a major transformation from being a local grocery and supermarket to a brick-and-mortar chain of hypermarkets, discount department stores, and grocery stores. Real Farm had 437 stores in total in all U.S. states as of December 2018. What used to be a family-owned business, became public in 1963 with the efforts of Mr. Bloom's three children. The company has survived two major financial crises (Great Depression and Great Recession). Yet, current developments in the retail industry has hit the company's future growth prospects more than ever. The company's share price plummeted from $24.72 at the end of April 2018 to $12.51 at the end of December 2018. Ms. Madelaine Bloom Camille, the current CFO of Real Farm and youngest grandchild of Mr. Jacques Bloom, believes the company's equity valuation is too low and considers a share repurchase plan of $50 million. Industry highlights: Real Farm was the industry leader until early 2000s. However, factors such as advancements in technology, e-commerce, shifts in purchasing habits of consumers and rising rents hurt the traditional brick-and-mortar stores. These changes in the market led to closing and/or bankruptcies of many brick- and-mortar stores in the U.S. These phenomena are called 'Retail Apocalypse' among the media and industry analysts. In order to gain market share in the online retail business, Real Farm acquired two major e- commerce websites, one in 2010 and the other one in 2015. Although this inorganic growth strategy helped the company increase its revenue, in 2018 80% of the company's sales still came from physical stores rather than online sales. This means the costs still remained high. Therefore, its profitability has been below its major competitors in the online retail. As of 2018 the market leaders in the retail industry are IdeaMart and Cheshire Goods. Both of these companies are online retailers that do not have physical store presence. This means their costs are much lower and their operating profitability is much higher than Real Farm. IdeaMart recently acquired 'Express', a major delivery services company in the country, and introduced same-day shipping options for groceries. Right after the announcement of the acquisition, IdeaMart share price jumped by 10%. Two weeks later Cheshire Goods announced that they would start a pilot program to test their in-house built drone-delivery services that would reduce the delivery time to a couple of hours at the maximum. The other two major online retailers are Maxi Market and City's Best. All of these companies have higher share price and market valuation than Real Farm. On the more traditional side of the industry, three other competitors that have similar business models as Real Farm are Baylor, Consolidated Markets and Country Wide. Not surprisingly their market valuations are also similar to Real Farm. In light of all these facts and recent performance of the company, CFO Ms. Camille wants to evaluate two scenarios. One of them is an expansion scenario, in which the revenue growth forecast is 3% File Home Insert Draw Design Layout References Mailings Review View Help Share Comments C) PROTECTED VIEW Be carefulfiles from the Internet can contain viruses. Unless you need to edit, it's safer to stay in Protected View Enable Editing 1 . . . . . . . . . . . . 1 . . . . 2 . . . . . . 3 . . . . . 4 . . . . . 5 . . . . 6 . and operating margin is 9% in the long term (2023 and after). In the second scenario Ms. Camille evaluates recession possibilities and forecasts revenue growth to be stagnant (0%) and operating margin to be 5% in the long term (2023 and after). You are expected to prepare a report to the CFO answering below questions using the historical and forecasted financial information provided in the excel document. Questions: 1. Summarize the recent financial condition of Real Farm (refer to financial statements and industry information). 2. Using the information provided, find WACC of Real Farm and its competitors on excel sheet Question 2. Determine whether comparable firms' average is a good representation of Real Farm's cost of capital. Why/Why not? Use excel sheet Question 3 to find FCF and implied share price of the company in the expansion scenario. You have to use WACC you find in Ouestion 2. Use excel sheet Question 4 to find FCF and implied share price of the company in the recession scenario. You have to use WACC you find in Question 2. Discuss Real Farm's dividend policy. What are the signaling implications of this policy? Would you suggest a policy change? 6. When does a management of a firm decide to repurchase shares? What are the possible effects of a share repurchase on the share price? Why? Under which scenario would you advise the firm to repurchase shares? 7. Discuss 'Retail Apocalypse' and recent developments in the retail sector in the U.S. Based on your discussion, determine which forecast scenario is more likely for Real Farm? Reporting instructions: The main body of the report should include at least 1000 words with 1-inch margins on top- bottom-left-right with 1.5 spacing and Times New Roman 12-font (You can use smaller font for tables to fit them in a word document.) In Questions 2, 3 and 4 after you fill in the tables, copy them and paste to a Word document. Then for formatting of the table: Highlight the table. Click on Layout >> Autofit >> Autofit Contents Dace 2 of 2 0 words 'T' Focus + 100: TOT DI LO OTTICO C) PROTECTED VIEW Be carefulfiles from the Internet can contain viruses. Unless you need to edit, it's safer to stay in Protected View Enable Editing A27 X v A fic B C D REAL FARM Real Farm Income Statement (in millions of dollars) E F G H I J K L M N E 2015 2017 2018 1,636 713 1,691 810 619 226 290 1,593 682 478 261 1,677 743 526 508 276 258 0 (253) 139 7 Total Revenue 8 Material, Labor, and Other Pruduction Costs 9 Selling, Distribution, and Marketing Expenses 10 Administrative and General Expenses 11 Goodwill and Other Intangible Asset Impairments 12 Other Operating Expenses 13 Operating Income 14 Net Interest Expense 15 Income Before Income Tax Expense 16 Income Tax Expense 17 Net Income 18 19 Earnings Per Share (Basic) 20 Dividends per Share 22 14 19 120 175 13 161 69 92 (275) (47) (228) 129 39 50 81 79 2.06 (4.89) 0.60 2.07 0.36 2.18 0.56 0.60 21 22 26 28 29 30 Income Statement Balance Sheet Comparable Firms Forecast Assumptions Capital Market Data Question 2 ... File Tulle liseil Diaw Page Layout PULUlasDalaNeview view Temp Silale CUTTICIILS () PROTECTED VIEW Be carefulfiles from the Internet can contain viruses. Unless you need to edit, it's safer to stay in Protected View ed to edit it's safer to stay in Protected View Enable Editing Enable Editing B15 - * r fix 849.88 B C D REAL FARM Real Farm Balance Sheet (in millions of dollars) E F G H I J K L M N 2016 2017 2018 216 120 180 128 72 716 172 130 190 131 94 54 677 832 1,547 859 1,536 1 0 0 95 87 8 Cash and Cash Equivalents 138 9 Trade Accounts Receivable 136 10 Inventories 164 11 Prepaid Expenses 148 12 Other Current Assets 13 Total Current Assets 679 14 15 Net Property, Plant, and Equipment and Other Assets 850 16 Total Assets 1,529 17 18 Debt Due within One Year 19 Accounts Payable 20 Other Current Liabilities 21 Current Liabilities 369 22 23 Long-Term Debt 329 24 Other Liabilities 196 25 Shareholders' Equity 636 26 Total Liabilities and Shareholders' Equity 1,529 27 28 29 30 31 Income Statement Balance Sheet Comparable Firms 272 87 245 332 255 343 235 206 233 219 763 1,547 752 1,536 Forecast Assumptions Capital Market Data Question 2 ... + Ready !!! E + 10 File Tulle liseil Diaw Page Layout PULUlasDalaNeview view Temp Silay CUTTICIILS () PROTECTED VIEW Be carefulfiles from the Internet can contain viruses. Unless you need to edit, it's safer to stay in Protected View Enable Editing D24 x fix A B C D E F G H I J K L M = REAL FARM Comparable Firms, End of 2018 (in millions of dollars except share price) Shares Outstanding Enterprise Value EBITDA Multiple* Share Price Total Cash Total Debt Revenue EBITDA ROA ROE Beta Bond Rating 714 204 7% BB+ 38.3 8.2 10.2 235 101 3.5 11.7 568 48 1,677 984 1,050 453 11% 9% 10% 2% 197 692 5.6 BB 9.7 1.63 1.60 1.45 1.36 1.85 194 7 Real Farm 8 Baylor 9 Consolidated Markets 10 Country Wide 11 IdeaMart 12 Cheshire Goods 13 Maxi Market 14 City's Best 15 6.5 12.51 56.80 48.28 19.92 22.76 69.34 32.65 29.97 122 30 359 156 50.9 742 1,901 5.3 4% 13% 14% 55% 27.3 19% 0.42 1,420 1,090 1,350 1,950 1,890 1,712 1,145 12.2 7.1 240 7% 44.8 31.1 BB 189 15% 8% 1.75 1.04 6% BB- 16 17 * EBITDA miltiple = Enterprise Value divided by EBITDA 18 19 20 22 23 24 Income Statement Balance Sheet Comparable Firms Forecast Assumptions Capital Market Data Question 2 ... + File Tulle liseil Diaw Page Layout PULUlasDalaNeview view Temp Bilal CUITCILS () PROTECTED VIEW Be carefulfiles from the Internet can contain viruses. Unless you need to edit, it's safer to stay in Protected View Enable Editing F15 Xv Ft 2.5% A B _ C D E F G H I J K L M N O P HNM + REAL FARM Real Farm Operating Performance and Financial Forecast Assumptions 2017 2012 0% 8% 2013 -7% 2% 2014 -1% 5% 2015 -5% 2016 -3% 6% 2018 7% -2% -1% 9% 9% 5 Operating Performance 6 7 Revenue Growth 8 Operating Margin 9 10 11 Forecast Assumptions 12 13 14 Expansion Scenario 15 Revenue Growth 16 Operating Margin 17 Net Working Capital Turnover 18 Fixed Asset Turnover *************** Forecast *************** Actual 2018 2019 2020 2021 2022 5.3% 9.4% 5.02 1.95 1.0% 9.0% 6.00 1.95 1.5% 9.0% 6.50 1.95 2.0% 9.0% 7.00 1.95 2.5% 9.0% 7.50 1.95 19 0.0% 5.5% 7.50 1.95 6.00 20 Recession Scenario 21 Revenue Growth 5.3% -1.0% -1.0% -0.5% 22 Operating Margin 9.4% 8.0% 7.0% 6.0% 23 Net Working Capital Turnover 5.02 6.50 7.00 24 Fixed Asset Turnover 1.95 1.95 1.95 1.95 25 26 The ratios are defined as follows: 27 Revenue Growth = annual percentage change in total revenue 28 Operating Margin = operating income divided by total revenue 29 Net Working Capital Turnover = total revenue divided by net working capital 30 Net working capital = current assets less current liabilities 31 Fixed Assets = net PP&E and other assets item in balance sheet Income Statement Balance Sheet Comparable Firms Forecast Assumptions Capital Market Data Question 2 ... + File Home Insert Draw Page Layout Formulas Data Review View Help Share Comments i PROTECTED VIEW Be carefulfiles from the Internet can contain viruses. Unless you need to edit, it's safer to stay in Protected View Enable Editing H12 - : X fix A C / D E F G H J K L M N O P REAL FARM Capital Market Data Nm toda 30-Day Treasury Bill 10-Year Treasury Bond Yield 0.1% 2.8% 10-Year Corporate Bonds of Industrial Companies AAA AA A+ 4 BBB+ BBB BBB- BB+ 2.8% 2.9% 3.2% 3.3% 3.5% 3.8% 4.1% 4.6% 5.8% 6.5% 6.5% 6.8% 8.4% 9.0% BB- Historical Market Risk Premium Equity Market Index Less Government Debt | 26 5.5% 27 29 30 U.S. Real GDP Annual Growth Rate U.S. GDP Annual Deflator Rate Consumer Price Index Annual Rate 5-Year Forecast 3.3% 1.8% 2.2% 31 32 33 34 Corporate Tax rate 39.0% 35 Income Statement Balance Sheet Comparable Firm Forecast Assumptions Capital Market Data Question 2 ... + C) PROTECTED VIEW Be carefulfiles from the Internet can contain viruses. Unless you need to edit, it's safer to stay in Protected View. Enable Editing H21 A B C D E F G H J K L M N O P 1 REAL FARM Estimate of Cost of Capital for Real Farm Debt/Value Bond Rating Cost of debt Beta Cost of equity WACC 6 Risk-Free Rate 7 Market Risk Premium 8 Tax Rate 9 10 11 12 Real Farm 13 Baylor 14 Consolidated Markets 15 Country Wide 16 IdeaMart 17 Cheshire Goods 18 Maxi Market 19 City's Best 20 Mean 21 22 Income Statement Balance Sheet Comparable Firms Forecast Assumptions Capital Market Data Question 2 ... : File Home Insert Draw Page Layout Formulas Data Review View Help Share Comments () PROTECTED VIEW Be carefulfiles from the Internet can contain viruses. Unless you need to edit, it's safer to stay in Protected View Enable Editing X fix L23 _ - A B C E F G H J K L M N O P Q R om D REAL FARM Expansion Scenario in 2019 1.0% 9.0% 6.00 1.95 2020 1.5% 9.0% 2018 5.3% 9.4% 5.02 1.95 0.0% 39% 2021 2.0% 9.0% 7.00 1.95 2022 2.5% 9.0% 7.50 1.95 long term 2023 3.0% 9.0% 7.50 6.50 1.95 6 Revenue Growth 7 Operating Margin 8 NWC Turnover 9 FA Turnover 10 WACC 11 Tax Rate 12 13 Revenue 14 EBIT 1.95 1,677 157 15 334 16 NWC 17 Fixed Assets 18 ROIC 859 8.0% 19 20 NOPAT 96 21 - change in NWC (49) 22 - change in NFA 23 FCF 118 24 Horizon value 25 Present value in 2018 26 PV of all future CFS 27 Debt 28 Equity 29 Shares 30 31 Implied Price 32 33 *ROIC = Return on invested capital 34 35 ... Balance Sheet Comparable Firms Forecast Assumptions Capital Market Data Question 2 Question 3 Questi ... . File Tulle liseil Diaw Page Layout PULUlasDalaNeview view Temp Bilal CUTTICILS () PROTECTED VIEW Be carefulfiles from the Internet can contain viruses. Unless you need to edit, it's safer to stay in Protected View Enable Editing L19 119 _ x for A B C E F G H I K M N O P Q R Nm tin D REAL FARM Recession Scenario 2018 5.3% 2019 -1.0% 8.0% 6.00 1.95 9.4% 2020 -1.0% 7.0% 6.50 1.95 2021 -0.5% 6.0% 7.00 1.95 long term 2023 0.0% 5.0% 7.50 1.95 2022 0.0% 5.5% 7.50 1.95 5.02 1.95 0.0% 39% 1,677 157 334 859 8.0% 6 Revenue Growth 7 Operating Margin 8 NWC Turnover 9 FA Turnover 10 WACC 11 Tax Rate 12 13 Revenue 14 EBIT 15 16 NWC 17 Fixed Assets 18 ROIC 19 20 NOPAT 21 - change in NWC 22 - change in NFA 23 FCF 24 Horizon value 25 Present value in 2018 26 PV of all future CFs 27 Debt 28 Equity 29 Shares 30 31 Implied Price 96 (49) 118 32 33 *ROIC = Return on invested capital 34 35 ... Comparable Firms Forecast Assumptions Capital Market Data Question 2 Question 3 Question 4 -- - ---- - - -- - - -- - - - - - - - - --- --- i) PROTECTED VIEW Be carefulfiles from the Internet can contain viruses. Unless you need to edit, it's safer to stay in Protected View Enable Editing 1 . . . . . . . . . . . . . . . . 2 . . . . . . 3 . . . . . 4 . . . . . .5 . . . . . .6 . . . . . . 7 . . . Real Farm Inc. Company History: Real Farm Inc. is a retail chain founded by Jacques Bloom in 1903 as a family business in Wallingford, CT. Since the foundation, the company has experienced a major transformation from being a local grocery and supermarket to a brick-and-mortar chain of hypermarkets, discount department stores, and grocery stores. Real Farm had 437 stores in total in all U.S. states as of December 2018. What used to be a family-owned business, became public in 1963 with the efforts of Mr. Bloom's three children. The company has survived two major financial crises (Great Depression and Great Recession). Yet, current developments in the retail industry has hit the company's future growth prospects more than ever. The company's share price plummeted from $24.72 at the end of April 2018 to $12.51 at the end of December 2018. Ms. Madelaine Bloom Camille, the current CFO of Real Farm and youngest grandchild of Mr. Jacques Bloom, believes the company's equity valuation is too low and considers a share repurchase plan of $50 million. Industry highlights: Real Farm was the industry leader until early 2000s. However, factors such as advancements in technology, e-commerce, shifts in purchasing habits of consumers and rising rents hurt the traditional brick-and-mortar stores. These changes in the market led to closing and/or bankruptcies of many brick- and-mortar stores in the U.S. These phenomena are called 'Retail Apocalypse' among the media and industry analysts. In order to gain market share in the online retail business, Real Farm acquired two major e- commerce websites, one in 2010 and the other one in 2015. Although this inorganic growth strategy helped the company increase its revenue, in 2018 80% of the company's sales still came from physical stores rather than online sales. This means the costs still remained high. Therefore, its profitability has been below its major competitors in the online retail. As of 2018 the market leaders in the retail industry are IdeaMart and Cheshire Goods. Both of these companies are online retailers that do not have physical store presence. This means their costs are much lower and their operating profitability is much higher than Real Farm. IdeaMart recently acquired 'Express', a major delivery services company in the country, and introduced same-day shipping options for groceries. Right after the announcement of the acquisition, IdeaMart share price jumped by 10%. Two weeks later Cheshire Goods announced that they would start a pilot program to test their in-house built drone-delivery services that would reduce the delivery time to a couple of hours at the maximum. The other two major online retailers are Maxi Market and City's Best. All of these companies have higher share price and market valuation than Real Farm. On the more traditional side of the industry, three other competitors that have similar business models as Real Farm are Baylor, Consolidated Markets and Country Wide. Not surprisingly their market valuations are also similar to Real Farm. In light of all these facts and recent performance of the company, CFO Ms. Camille wants to evaluate two scenarios. One of them is an expansion scenario, in which the revenue growth forecast is 3% File Home Insert Draw Design Layout References Mailings Review View Help Share Comments C) PROTECTED VIEW Be carefulfiles from the Internet can contain viruses. Unless you need to edit, it's safer to stay in Protected View Enable Editing 1 . . . . . . . . . . . . 1 . . . . 2 . . . . . . 3 . . . . . 4 . . . . . 5 . . . . 6 . and operating margin is 9% in the long term (2023 and after). In the second scenario Ms. Camille evaluates recession possibilities and forecasts revenue growth to be stagnant (0%) and operating margin to be 5% in the long term (2023 and after). You are expected to prepare a report to the CFO answering below questions using the historical and forecasted financial information provided in the excel document. Questions: 1. Summarize the recent financial condition of Real Farm (refer to financial statements and industry information). 2. Using the information provided, find WACC of Real Farm and its competitors on excel sheet Question 2. Determine whether comparable firms' average is a good representation of Real Farm's cost of capital. Why/Why not? Use excel sheet Question 3 to find FCF and implied share price of the company in the expansion scenario. You have to use WACC you find in Ouestion 2. Use excel sheet Question 4 to find FCF and implied share price of the company in the recession scenario. You have to use WACC you find in Question 2. Discuss Real Farm's dividend policy. What are the signaling implications of this policy? Would you suggest a policy change? 6. When does a management of a firm decide to repurchase shares? What are the possible effects of a share repurchase on the share price? Why? Under which scenario would you advise the firm to repurchase shares? 7. Discuss 'Retail Apocalypse' and recent developments in the retail sector in the U.S. Based on your discussion, determine which forecast scenario is more likely for Real Farm? Reporting instructions: The main body of the report should include at least 1000 words with 1-inch margins on top- bottom-left-right with 1.5 spacing and Times New Roman 12-font (You can use smaller font for tables to fit them in a word document.) In Questions 2, 3 and 4 after you fill in the tables, copy them and paste to a Word document. Then for formatting of the table: Highlight the table. Click on Layout >> Autofit >> Autofit Contents Dace 2 of 2 0 words 'T' Focus + 100: TOT DI LO OTTICO C) PROTECTED VIEW Be carefulfiles from the Internet can contain viruses. Unless you need to edit, it's safer to stay in Protected View Enable Editing A27 X v A fic B C D REAL FARM Real Farm Income Statement (in millions of dollars) E F G H I J K L M N E 2015 2017 2018 1,636 713 1,691 810 619 226 290 1,593 682 478 261 1,677 743 526 508 276 258 0 (253) 139 7 Total Revenue 8 Material, Labor, and Other Pruduction Costs 9 Selling, Distribution, and Marketing Expenses 10 Administrative and General Expenses 11 Goodwill and Other Intangible Asset Impairments 12 Other Operating Expenses 13 Operating Income 14 Net Interest Expense 15 Income Before Income Tax Expense 16 Income Tax Expense 17 Net Income 18 19 Earnings Per Share (Basic) 20 Dividends per Share 22 14 19 120 175 13 161 69 92 (275) (47) (228) 129 39 50 81 79 2.06 (4.89) 0.60 2.07 0.36 2.18 0.56 0.60 21 22 26 28 29 30 Income Statement Balance Sheet Comparable Firms Forecast Assumptions Capital Market Data Question 2 ... File Tulle liseil Diaw Page Layout PULUlasDalaNeview view Temp Silale CUTTICIILS () PROTECTED VIEW Be carefulfiles from the Internet can contain viruses. Unless you need to edit, it's safer to stay in Protected View ed to edit it's safer to stay in Protected View Enable Editing Enable Editing B15 - * r fix 849.88 B C D REAL FARM Real Farm Balance Sheet (in millions of dollars) E F G H I J K L M N 2016 2017 2018 216 120 180 128 72 716 172 130 190 131 94 54 677 832 1,547 859 1,536 1 0 0 95 87 8 Cash and Cash Equivalents 138 9 Trade Accounts Receivable 136 10 Inventories 164 11 Prepaid Expenses 148 12 Other Current Assets 13 Total Current Assets 679 14 15 Net Property, Plant, and Equipment and Other Assets 850 16 Total Assets 1,529 17 18 Debt Due within One Year 19 Accounts Payable 20 Other Current Liabilities 21 Current Liabilities 369 22 23 Long-Term Debt 329 24 Other Liabilities 196 25 Shareholders' Equity 636 26 Total Liabilities and Shareholders' Equity 1,529 27 28 29 30 31 Income Statement Balance Sheet Comparable Firms 272 87 245 332 255 343 235 206 233 219 763 1,547 752 1,536 Forecast Assumptions Capital Market Data Question 2 ... + Ready !!! E + 10 File Tulle liseil Diaw Page Layout PULUlasDalaNeview view Temp Silay CUTTICIILS () PROTECTED VIEW Be carefulfiles from the Internet can contain viruses. Unless you need to edit, it's safer to stay in Protected View Enable Editing D24 x fix A B C D E F G H I J K L M = REAL FARM Comparable Firms, End of 2018 (in millions of dollars except share price) Shares Outstanding Enterprise Value EBITDA Multiple* Share Price Total Cash Total Debt Revenue EBITDA ROA ROE Beta Bond Rating 714 204 7% BB+ 38.3 8.2 10.2 235 101 3.5 11.7 568 48 1,677 984 1,050 453 11% 9% 10% 2% 197 692 5.6 BB 9.7 1.63 1.60 1.45 1.36 1.85 194 7 Real Farm 8 Baylor 9 Consolidated Markets 10 Country Wide 11 IdeaMart 12 Cheshire Goods 13 Maxi Market 14 City's Best 15 6.5 12.51 56.80 48.28 19.92 22.76 69.34 32.65 29.97 122 30 359 156 50.9 742 1,901 5.3 4% 13% 14% 55% 27.3 19% 0.42 1,420 1,090 1,350 1,950 1,890 1,712 1,145 12.2 7.1 240 7% 44.8 31.1 BB 189 15% 8% 1.75 1.04 6% BB- 16 17 * EBITDA miltiple = Enterprise Value divided by EBITDA 18 19 20 22 23 24 Income Statement Balance Sheet Comparable Firms Forecast Assumptions Capital Market Data Question 2 ... + File Tulle liseil Diaw Page Layout PULUlasDalaNeview view Temp Bilal CUITCILS () PROTECTED VIEW Be carefulfiles from the Internet can contain viruses. Unless you need to edit, it's safer to stay in Protected View Enable Editing F15 Xv Ft 2.5% A B _ C D E F G H I J K L M N O P HNM + REAL FARM Real Farm Operating Performance and Financial Forecast Assumptions 2017 2012 0% 8% 2013 -7% 2% 2014 -1% 5% 2015 -5% 2016 -3% 6% 2018 7% -2% -1% 9% 9% 5 Operating Performance 6 7 Revenue Growth 8 Operating Margin 9 10 11 Forecast Assumptions 12 13 14 Expansion Scenario 15 Revenue Growth 16 Operating Margin 17 Net Working Capital Turnover 18 Fixed Asset Turnover *************** Forecast *************** Actual 2018 2019 2020 2021 2022 5.3% 9.4% 5.02 1.95 1.0% 9.0% 6.00 1.95 1.5% 9.0% 6.50 1.95 2.0% 9.0% 7.00 1.95 2.5% 9.0% 7.50 1.95 19 0.0% 5.5% 7.50 1.95 6.00 20 Recession Scenario 21 Revenue Growth 5.3% -1.0% -1.0% -0.5% 22 Operating Margin 9.4% 8.0% 7.0% 6.0% 23 Net Working Capital Turnover 5.02 6.50 7.00 24 Fixed Asset Turnover 1.95 1.95 1.95 1.95 25 26 The ratios are defined as follows: 27 Revenue Growth = annual percentage change in total revenue 28 Operating Margin = operating income divided by total revenue 29 Net Working Capital Turnover = total revenue divided by net working capital 30 Net working capital = current assets less current liabilities 31 Fixed Assets = net PP&E and other assets item in balance sheet Income Statement Balance Sheet Comparable Firms Forecast Assumptions Capital Market Data Question 2 ... + File Home Insert Draw Page Layout Formulas Data Review View Help Share Comments i PROTECTED VIEW Be carefulfiles from the Internet can contain viruses. Unless you need to edit, it's safer to stay in Protected View Enable Editing H12 - : X fix A C / D E F G H J K L M N O P REAL FARM Capital Market Data Nm toda 30-Day Treasury Bill 10-Year Treasury Bond Yield 0.1% 2.8% 10-Year Corporate Bonds of Industrial Companies AAA AA A+ 4 BBB+ BBB BBB- BB+ 2.8% 2.9% 3.2% 3.3% 3.5% 3.8% 4.1% 4.6% 5.8% 6.5% 6.5% 6.8% 8.4% 9.0% BB- Historical Market Risk Premium Equity Market Index Less Government Debt | 26 5.5% 27 29 30 U.S. Real GDP Annual Growth Rate U.S. GDP Annual Deflator Rate Consumer Price Index Annual Rate 5-Year Forecast 3.3% 1.8% 2.2% 31 32 33 34 Corporate Tax rate 39.0% 35 Income Statement Balance Sheet Comparable Firm Forecast Assumptions Capital Market Data Question 2 ... + C) PROTECTED VIEW Be carefulfiles from the Internet can contain viruses. Unless you need to edit, it's safer to stay in Protected View. Enable Editing H21 A B C D E F G H J K L M N O P 1 REAL FARM Estimate of Cost of Capital for Real Farm Debt/Value Bond Rating Cost of debt Beta Cost of equity WACC 6 Risk-Free Rate 7 Market Risk Premium 8 Tax Rate 9 10 11 12 Real Farm 13 Baylor 14 Consolidated Markets 15 Country Wide 16 IdeaMart 17 Cheshire Goods 18 Maxi Market 19 City's Best 20 Mean 21 22 Income Statement Balance Sheet Comparable Firms Forecast Assumptions Capital Market Data Question 2 ... : File Home Insert Draw Page Layout Formulas Data Review View Help Share Comments () PROTECTED VIEW Be carefulfiles from the Internet can contain viruses. Unless you need to edit, it's safer to stay in Protected View Enable Editing X fix L23 _ - A B C E F G H J K L M N O P Q R om D REAL FARM Expansion Scenario in 2019 1.0% 9.0% 6.00 1.95 2020 1.5% 9.0% 2018 5.3% 9.4% 5.02 1.95 0.0% 39% 2021 2.0% 9.0% 7.00 1.95 2022 2.5% 9.0% 7.50 1.95 long term 2023 3.0% 9.0% 7.50 6.50 1.95 6 Revenue Growth 7 Operating Margin 8 NWC Turnover 9 FA Turnover 10 WACC 11 Tax Rate 12 13 Revenue 14 EBIT 1.95 1,677 157 15 334 16 NWC 17 Fixed Assets 18 ROIC 859 8.0% 19 20 NOPAT 96 21 - change in NWC (49) 22 - change in NFA 23 FCF 118 24 Horizon value 25 Present value in 2018 26 PV of all future CFS 27 Debt 28 Equity 29 Shares 30 31 Implied Price 32 33 *ROIC = Return on invested capital 34 35 ... Balance Sheet Comparable Firms Forecast Assumptions Capital Market Data Question 2 Question 3 Questi ... . File Tulle liseil Diaw Page Layout PULUlasDalaNeview view Temp Bilal CUTTICILS () PROTECTED VIEW Be carefulfiles from the Internet can contain viruses. Unless you need to edit, it's safer to stay in Protected View Enable Editing L19 119 _ x for A B C E F G H I K M N O P Q R Nm tin D REAL FARM Recession Scenario 2018 5.3% 2019 -1.0% 8.0% 6.00 1.95 9.4% 2020 -1.0% 7.0% 6.50 1.95 2021 -0.5% 6.0% 7.00 1.95 long term 2023 0.0% 5.0% 7.50 1.95 2022 0.0% 5.5% 7.50 1.95 5.02 1.95 0.0% 39% 1,677 157 334 859 8.0% 6 Revenue Growth 7 Operating Margin 8 NWC Turnover 9 FA Turnover 10 WACC 11 Tax Rate 12 13 Revenue 14 EBIT 15 16 NWC 17 Fixed Assets 18 ROIC 19 20 NOPAT 21 - change in NWC 22 - change in NFA 23 FCF 24 Horizon value 25 Present value in 2018 26 PV of all future CFs 27 Debt 28 Equity 29 Shares 30 31 Implied Price 96 (49) 118 32 33 *ROIC = Return on invested capital 34 35 ... Comparable Firms Forecast Assumptions Capital Market Data Question 2 Question 3 Question 4
