It is the end of 2014 and you are working in the finance department of BioTrend Industries. The CFO of the company knows that you just earned a BBA from Georgia, which is known for its rigorous education in Finance; hence, he asks you to determine the intrinsic value of the company alongside an assessment if the stock is currently undervalued or overvalued. Assume that the company is still in the non-growth stage (2014 and 2015), but that cash flows are expected to grow at a constant rate of 7% after 2015.

You start immediately with the collection of all relevant data, which are listed below:

Financial statements for 2014 (see spreadsheet)

The company's historical sales:

Year

Sales

2009

85,215

2010

133,901

2011

200,252

2012

288,065

2013

380,692

2014

445,150

2015

Assume interest rate on short-term securities: 1%

Assume interest rate for short-term debt: 3%

Assume interest rate on long-term debt: 5%

No interest is earned on cash.

Tax rate: 30%

Dividends growth rate: 15%

The industry average quick ratio: 2.0

The industry average debt ratio: 35% debt

Target Capital structure: 40% debt and 60% common equity

Bond Information:

If the company issues new bonds it would do so by issuing bonds with 20 years to maturity. The company has right now semiannual coupon bonds with a 6% coupon payment outstanding. The bonds were issued 10 years ago with 30 years to maturity and sell currently for 1048. The flotation cost is assumed to be 3% of par value (remember par value is always $1,000).

Stock Information:

The risk free rate (Rf) is right now 3% and the return on the market 12%. The companys beta is 1.1. The company has 5 million shares outstanding (5,000 in thousands). The current market value of the stock is $60.

Dr. Axel Grossmann FINC 3132

Use the provided spreadsheet to calculate the following (note, numbers are in thousands):

A) The forecasted sales for 2015 (based on a regression equation)

B) The pro-format statements for 2015

- The company needs to increase fixed assets to support sales

- (Use the beginning of year debt balances to calculate net interest expense)

C) The FCF for 2015 and for 2016

D) The WACC

E) Intrinsic Value per share end of 2014

F) Market value added (MVA)

a. Based on the actual market price

b. Based on the intrinsic value