Instructions for FIN 4305 Project: This is a group project but you have the option to work alone if you choose to. I recommend group work since students learn from each other as they collaborate and the quality of the work tends to be better as a result. You can form groups of up to 3 people. The project discussion forum under Blackboard can be used to form groups with other students. Once you form your group, you need to sign up as a group under "groups" section under "course tools" in Blackboard. Even if you are planning to do the project alone, you still need to do this because the project submission link will only be available to students who sign up. This project is based on the WOK YOW IMPORTS, INC. case found in your textbook under Chapter 14. Please read the case carefully. An excel spreadsheet is provided that has the solution to the case along with suggested answers to the case questions. Please go over the excel sheet first and make sure that you can follow the calculations for the discounted cash flow valuation method (enterprise valuation method). All the formulas are built into the excel file so when you go over a cell, you can track how the calculation for each number on the sheet is done. Pay special attention to the financial ratios, growth assumptions, calculation of the free cash flows for the foreseeable future (5 years) and the calculation of the terminal value. These future free cash flows are then discounted back to time zero using the discount rate (WACC). Once you feel comfortable on the model and the solutions to the case, I want you to answer the following questions to complete your project assignment: Using the provided financial statements as a starting point: 1. The DCF valuation and pro forma financials with five years of forecasted growth rates are provided in the original model. Please modify the model to consider a more successful scenario where Wok Yows sales grow at a more aggressive pace of 40% for five years and then flatten to a more sustainable growth rate of 7%. What would the stock value per share be under the new scenario? What kind of strategic changes you would make in the business model to justify the growth assumption? How would you do things differently? You can use fictional events to justify your assumptions. 2. Prepare and present DCF valuations and pro forma financial statements (five-year explicit period) that justify a $31 and a $56 share price. You can play with the model assumptions to get to these valuations. Propose two different business plans that would be targeting these two different outcomes. Make sure the ratios embedded in your projections conform to reasonable operating ratio assumptions in the models. Also remember that higher risk business strategies come with higher expected returns. 3. Discuss the $31 and $56 IPO prices for Wok Yow within the context of comparable firms and their multiples. You can use some outside reference materials from companies in similar industries for comparison purposes. Then take a position on whether you would recommend the $31 or $56 IPO. Which one is more feasible? Take a position on which of the two business plans you would invest in as an investor, which financial instrument of the company you would want to invest in and what kind of a return you would expect on your money. 4. Prepare an executive summary discussing the events and decisions leading to its current situation, the options it currently has moving forward, and your recommendations for Wok Yows near future. The events in the summary will be fictional. Guidelines: Please copy and paste the original excel sheet into a new worksheet and make your changes on the new one for each of the models you are working on. I want to be able to follow your calculations relating to the answers to each question on a different excel worksheet in the same file. Highlight the changes that you make on the model so that your changes can be traced easily. You will need to make changes on the companys operations in order to increase growth rate to 50%, and in order to justify the $31 and $56 stock valuations. In all cases be sure to explain your modeling assumptions on operating and financing of the venture and provide a summary of the four scenarios. Your grade on the project will be based on the accuracy of your calculations and more importantly, on the coherent nature of the assumptions of different strategies and their likely effect on the future projections of the financial model. For example, a more efficient inventory management system would decrease the companys NOWC and would free up cash flow, increasing the value of the firm. I would want to see that the improved inventory management is mentioned in the business strategy and also the required NOWC amounts lowered in the financial model, leading to a greater company valuation. If a strategy is mentioned but its financial implications cannot be traced to the financial model, you will loose points. The work can be completed in a single excel file with multiple worksheets. Your answers to the 4 questions can be on one worksheet and you can reference your answers to each question the corresponding worksheet that has the relevant model. This would make it easier for me to track your answers and your financial models.

WOK YOW IMPORTS, INC.
Enterprise (Entity) Valuation Solution [Parts A through G]:
Chapter 14 Mini Case			Percent Change in Net Sales						Percent Change in Net Sales
	% of		33.3%	25.0%	20.0%	16.7%	6.0%			33.3%	25.0%	20.0%	16.7%
[Thousands of Dollars]	2016	Actual	Pro forma --------------------------------------------						Percent of Net Sales
NOPAT Statements	Sales	2016	2017	2018	2019	2020	2021		2016	2017	2018	2019	2020
Net Sales	100.0%	150.0	200.0	250.0	300.0	350.0	371.0		100.0%	100.0%	100.0%	100.0%	100.0%
Cost of Goods Sold	-50.0%	-75.0	-100.0	-125.0	-150.0	-175.0	-185.5		-50.0%	-50.0%	-50.0%	-50.0%	-50.0%
Gross Profit	50.0%	75.0	100.0	125.0	150.0	175.0	185.5		50.0%	50.0%	50.0%	50.0%	50.0%
SG&A Expenses	-20.0%	-30.0	-40.0	-50.0	-60.0	-70.0	-74.2		-20.0%	-20.0%	-20.0%	-20.0%	-20.0%
Depreciation	-5.0%	-7.5	-10.0	-12.5	-15.0	-17.5	-18.6		-5.0%	-5.0%	-5.0%	-5.0%	-5.0%
EBIT	25.0%	37.5	50.0	62.5	75.0	87.5	92.8		25.0%	25.0%	25.0%	25.0%	25.0%
Interest	0.0%	0.0	0.0	0.0	0.0	0.0	0.0		0.0%	0.0%	0.0%	0.0%	0.0%
EBT	25.0%	37.5	50.0	62.5	75.0	87.5	92.8		25.0%	25.0%	25.0%	25.0%	25.0%
Taxes (40% rate)	-10.0%	-15.0	-20.0	-25.0	-30.0	-35.0	-37.1		-10.0%	-10.0%	-10.0%	-10.0%	-10.0%
NOPAT	15.0%	22.5	30.0	37.5	45.0	52.5	55.7		15.0%	15.0%	15.0%	15.0%	15.0%
Required Net Working Capital:
Req Cash+Receivables+Inventories	33.3%	50.0	66.7	83.3	100.0	116.7	123.7
Minus: Payables+Accruals	-16.7%	-25.0	-33.3	-41.7	-50.0	-58.3	-61.8
Req Net Working Capital (RNWC)		25.0	33.3	41.7	50.0	58.3	61.8
Increase in RNWC			8.3	8.3	8.3	8.3	3.5
Fixed Assets Schedule:
Net Fixed Assets (NFA)	33.3%	50.0	66.6	83.3	100.0	116.7	123.7
Increase in NFA			16.7	16.7	16.7	16.7	7.0
Plus: Depreciation			10.0	12.5	15.0	17.5	18.6
CAPEX			26.7	29.2	31.7	34.2	25.5
Free Cash Flows to Entity:
NOPAT			30.0	37.5	45.0	52.5	55.7
Plus: Depreciation			10.0	12.5	15.0	17.5	18.6
Minus: CAPEX			-26.7	-29.2	-31.7	-34.2	-25.5
Minus: Increase in NWC			-8.3	-8.3	-8.3	-8.3	-3.5
Operating Free Cash Flows			5.0	12.4	20.0	27.5	45.2
Terminal Value CF (r =.18, g =.06)						376.3
Total Free Cash Flows (TFCF)			5.0	12.4	20.0	403.8
PV of TFCF (18% Discount Rate)		$233.6
Less: LTD Value		$30.0
Equity Value		$203.6
Value Per Share (10,000 shares)		$20.36