IV. 2More4U

In the Exhibit below, selected financial numbers from the latest fiscal year (Year 10) as well as forecasts for the next 3 years for 2More4U Ltd. have been provided. As the figures indicate, 2More4U expect to grow substantially over the next 3 years. The CEO of 2More4U is uncertain if the high expected growth rates are in the firms best interest.

Therefore, she asks you to explain to her:

1.Under which conditions growth is value creating

2. How growth generally affect a firms cash flows Further, based on the Exhibit she asks you to:

3. (5 points) Calculate 2More4U growth rate in sales for E1E3

4. (5 points) Prepare a cash flow statement for E1E3. Your cash flow statement should be divided into:

Cash flows from operations

Cash flows from investing

Cash flows from financing

(try to provide in one table, where the first column lists all the items, while column 2 3 and 4 show the number for each of the year, respectively.)

And to explain:

5. Whether cash flow from operations or operating earnings are better at explaining the performance (i.e. the value creation) of 2More4U in the Exhibit?

6. Why earnings are positive, while cash flows from operations are negative (in the forecast period)?

In answering the questions, please make sure to state any assumptions that you make (if you are making any).

Income Statement (EURm) Year E1 E2 E3 Sales Cost of goods sold Gross profit SG&A expenses Depreciation Earnings before interest and taxes Financial expenses, net Earmings before taxes Taxes Net earnings 400 600 200 (120) (100) (20) 800 (400) 400 (140)(180) (110)(120) 100 50 (43) 10 24 72 (33) 26 In 2010 sales (revenue) was 200