just answer question this
1 If the actual price of the stock is $100, what is your assessment of the proposed operating plan? What are some actions the company can take to improvement the operating plan? Explain how such actions would improve the plan
Income Statement for the Year Ending December 31 (Millions of Dollars) 2017 Net Sales $ 830.0 Costs (except depreciation) $ 567.0 Depreciation $ 80.0 Total operating costs $ 647.0 Earning before int. & tax $ 183.0 Less interest $ 30.0 Earning before taxes $ 153.0 Taxes (40%) $ 61.2 Net income before pref. div. $ 91.8 Preferred div. $ 1.53 Net income avail. for com. div. $ 90.3 Common dividends $ 31.1 Addition to retained earnings $ 59.1 oleniu uilii Number of shares (in millions) Dividends per share $ 15 2.08 S 10.0 Balance Sheets for December 31 (Millions of Dollars) Assets 2017 Cash Short-term investments 22.0 Accounts receivable 70.0 Inventories 170.0 Total current assets $ 272.0 Net plant and equipment 600.0 Liabilities and Equity Accounts Payable Notes payable Accruals Total current liabilities $ Long-term bonds Preferred stock Common Stock (Par plus PIC) Retained earnings Common equity Total liabilities and equit $ 2017 16.0 42.0 42.0 100.0 300.0 15.0 Total Assets $ 872.0 257.0 200.0 457.0 872.0 Key Assumptions: Operating ratios remain unchanged from values in most recent year. Sales are expected to increase, 15%, 10%, 6%, and 6% during the next four years. The tax rate will remain at 40% and WACC is assumed to be 10.5% for all years. a. Calculate the actual operating and projected ratios. Also fill in the tax rate and WACC for each year. (6.75pts) Inputs Projected Projected 12/31/20 Projected 12/31/21 Actual Projected 12/31/2017 12/31/18 15% 68% 68% 13% 10% 68% 6% 68% 6% 68% 13% 13% 13% 13% 1% 1% 1% 1% 8% 8% 8% Sales Growth Rate Costs/Sales Depreciation/(Net PPE) Cash/Sales (Acct. Rec.)/Sales Inventories/Sales (Net PPE)/Sales (Acct. Pay.)/Sales Accruals/Sales Tax rate Weighted average cost of capital (WACC) 8% 20% 72% 20% 72% 2% 5% TAX WACC 8% 20% 72% 2% 5% 20% 72% 2% 5% 40% 10.5% 2% 20% 72% 2% 5% 40% 10.5% 40% 5% 40% 10.5% 40% 10.5% 10.5% u. Turecast lite par Ls UI LITE HIILITE Salement aliu valdnice Sreels liecessary Lu Laiculae iree Lasi TUW. (13.75pts) Partial Income Statement for the Year Ending December 31 (Millions of Dollars) Actual Projected Projected Income Statement Items 12/31/2017 12/31/18 12/31/19 Net Sales $830.0 $954.5 $1,050.0 Costs (except depreciation) $567.0 $652.05 $717.26 Depreciation $80.0 $92.0 $101.2 Total operating costs $647.0 $744.1 $818.5 Earning before int. & tax $183.0 $210.5 $231.5 Projected 12/31/20 $1,112.9 $760.29 $107.3 $867.6 $245.4 Projected 12/31/21 $1,179.7 $805.91 $113.7 $919.6 $260.1 Partial Balance Sheets for December 31 (Millions of Dollars) Actual Projected Operating Assets 12/31/2017 12/31/18 Cash $10.0 $11.50 Accounts receivable $70.0 $80.50 Inventories $170.0 $195.50 Net plant and equipment $600.0 $690.0 Projected 12/31/19 $12.65 $88.55 $215.05 $759.0 Projected 12/31/20 $13.41 $93.86 $227.95 $804.54 Projected 12/31/21 $14.21 $99.49 $241.63 $852.81 Operating Liabilities Accounts Payable Accruals $16.0 $42.0 $18.40 $48.30 $20.24 $53.13 $21.45 $56.32 $22.74 $59.70 c. Calculate free cash flow for each projected year. Also calculate the growth rates of free cash flow each year to ensure that there is constant growth (i.e., the same as the constant growth rate in sales) by the end of the forecast period. (11.25pts) Actual Projected Projected Projected Projected Calculation of FCF 12/31/2017 12/31/18 12/31/19 12/31/20 12/31/21 Operating current assets $250.0 $287.5 $316.3 $335.2 $355.3 Operating current liabilities $58.0 $66.7 $73.4 $77.8 $82.4 Net operating working capital $192.0 $220.8 $242.9 $257.5 $272.9 Net PPE $600.0 $690.0 $759.0 $804.5 $852.8 Total net operating capital $792.0 $910.8 $1,001.9 $1,062.0 $1,125.7 NOPAT $109.80 $126.27 $138.90 $147.23 $156.06 Investment in total net operating capital na $118.8 $91.1 $60.1 $63.7 Free cash flow na $47.8 $87.1 $92.3 Growth in FCF (gL) na 540.1% 82.2% 6.0% Growth in sales 15.0% 10.0% 6.0% 6.0% $7.5 d. Calculate the return on invested capital (ROIC=NOPAT/Total net operating capital) and the growth rate in free cash flow. What is the ROIC in the last year of the forecast? What is the long-term constant growth rate in free cash flow (gl is the growth rate in FCF in the last forecast period because all ratios are constant)? (2.5pts) Actual Projected 12/31/2017 12/31/18 Projected 12/31/19 Projected 12/31/20 Projected 12/31/21 Return on invested capital (ROICENOPAT/[Total net operating capital]) Weighted average cost of capital (WACC) 13.9% 13.9% 10.5% 13.9% 10.5% 13.9% 10.5% 13.9% 10.5% 10.5% e. Calculate the current value of operations. (Hint: First calculate the horizon value at the end of the forecast period, which is equal to the value of operations at the end of the forecast period. Assume that the annual growth rate beyond the horizon is equal to the growth rate at the horizon.) (6.5pts) Weighted average cost of capital (WACC) 10.5% Actual Projected 12/31/2017 12/31/18 $7.5 Projected 12/31/19 $47.8 Projected 1 2/31/20 $87.1 Free cash flow Long-term constant growth in FCF Horizon value Projected 12/31/21 $92.3 6.0% 2,175.2 Present value of horizon value Present value of forecasted FCF Value of operations (JPV of HV] + [PV of FCF]) $1,459.0 $172.4 $1,631.4 Total net operating capital $792.0 f. Calculate the price per share of common equity as of 12/31/2017.(3.25pts) 1 Millions except price per share 3 Value of operations 4 + Value of short-term investments 5 Total value of company - Total value of all debt 7- Value of preferred stock 3 Value of common equity Divided by number of shares Price per share Actual 12/31/2017 $1,631.4 $22.0 $1,653.4 $342.0 $15.0 $1,296.4 15 $86.43 2 Income Statement for the Year Ending December 31 (Millions of Dollars) 2017 Net Sales $ 830.0 Costs (except depreciation) $ 567.0 Depreciation $ 80.0 Total operating costs $ 647.0 Earning before int. & tax $ 183.0 Less interest $ 30.0 Earning before taxes $ 153.0 Taxes (40%) $ 61.2 Net income before pref. div. $ 91.8 Preferred div. $ 1.53 Net income avail. for com. div. $ 90.3 Common dividends $ 31.1 Addition to retained earnings $ 59.1 oleniu uilii Number of shares (in millions) Dividends per share $ 15 2.08 S 10.0 Balance Sheets for December 31 (Millions of Dollars) Assets 2017 Cash Short-term investments 22.0 Accounts receivable 70.0 Inventories 170.0 Total current assets $ 272.0 Net plant and equipment 600.0 Liabilities and Equity Accounts Payable Notes payable Accruals Total current liabilities $ Long-term bonds Preferred stock Common Stock (Par plus PIC) Retained earnings Common equity Total liabilities and equit $ 2017 16.0 42.0 42.0 100.0 300.0 15.0 Total Assets $ 872.0 257.0 200.0 457.0 872.0 Key Assumptions: Operating ratios remain unchanged from values in most recent year. Sales are expected to increase, 15%, 10%, 6%, and 6% during the next four years. The tax rate will remain at 40% and WACC is assumed to be 10.5% for all years. a. Calculate the actual operating and projected ratios. Also fill in the tax rate and WACC for each year. (6.75pts) Inputs Projected Projected 12/31/20 Projected 12/31/21 Actual Projected 12/31/2017 12/31/18 15% 68% 68% 13% 10% 68% 6% 68% 6% 68% 13% 13% 13% 13% 1% 1% 1% 1% 8% 8% 8% Sales Growth Rate Costs/Sales Depreciation/(Net PPE) Cash/Sales (Acct. Rec.)/Sales Inventories/Sales (Net PPE)/Sales (Acct. Pay.)/Sales Accruals/Sales Tax rate Weighted average cost of capital (WACC) 8% 20% 72% 20% 72% 2% 5% TAX WACC 8% 20% 72% 2% 5% 20% 72% 2% 5% 40% 10.5% 2% 20% 72% 2% 5% 40% 10.5% 40% 5% 40% 10.5% 40% 10.5% 10.5% u. Turecast lite par Ls UI LITE HIILITE Salement aliu valdnice Sreels liecessary Lu Laiculae iree Lasi TUW. (13.75pts) Partial Income Statement for the Year Ending December 31 (Millions of Dollars) Actual Projected Projected Income Statement Items 12/31/2017 12/31/18 12/31/19 Net Sales $830.0 $954.5 $1,050.0 Costs (except depreciation) $567.0 $652.05 $717.26 Depreciation $80.0 $92.0 $101.2 Total operating costs $647.0 $744.1 $818.5 Earning before int. & tax $183.0 $210.5 $231.5 Projected 12/31/20 $1,112.9 $760.29 $107.3 $867.6 $245.4 Projected 12/31/21 $1,179.7 $805.91 $113.7 $919.6 $260.1 Partial Balance Sheets for December 31 (Millions of Dollars) Actual Projected Operating Assets 12/31/2017 12/31/18 Cash $10.0 $11.50 Accounts receivable $70.0 $80.50 Inventories $170.0 $195.50 Net plant and equipment $600.0 $690.0 Projected 12/31/19 $12.65 $88.55 $215.05 $759.0 Projected 12/31/20 $13.41 $93.86 $227.95 $804.54 Projected 12/31/21 $14.21 $99.49 $241.63 $852.81 Operating Liabilities Accounts Payable Accruals $16.0 $42.0 $18.40 $48.30 $20.24 $53.13 $21.45 $56.32 $22.74 $59.70 c. Calculate free cash flow for each projected year. Also calculate the growth rates of free cash flow each year to ensure that there is constant growth (i.e., the same as the constant growth rate in sales) by the end of the forecast period. (11.25pts) Actual Projected Projected Projected Projected Calculation of FCF 12/31/2017 12/31/18 12/31/19 12/31/20 12/31/21 Operating current assets $250.0 $287.5 $316.3 $335.2 $355.3 Operating current liabilities $58.0 $66.7 $73.4 $77.8 $82.4 Net operating working capital $192.0 $220.8 $242.9 $257.5 $272.9 Net PPE $600.0 $690.0 $759.0 $804.5 $852.8 Total net operating capital $792.0 $910.8 $1,001.9 $1,062.0 $1,125.7 NOPAT $109.80 $126.27 $138.90 $147.23 $156.06 Investment in total net operating capital na $118.8 $91.1 $60.1 $63.7 Free cash flow na $47.8 $87.1 $92.3 Growth in FCF (gL) na 540.1% 82.2% 6.0% Growth in sales 15.0% 10.0% 6.0% 6.0% $7.5 d. Calculate the return on invested capital (ROIC=NOPAT/Total net operating capital) and the growth rate in free cash flow. What is the ROIC in the last year of the forecast? What is the long-term constant growth rate in free cash flow (gl is the growth rate in FCF in the last forecast period because all ratios are constant)? (2.5pts) Actual Projected 12/31/2017 12/31/18 Projected 12/31/19 Projected 12/31/20 Projected 12/31/21 Return on invested capital (ROICENOPAT/[Total net operating capital]) Weighted average cost of capital (WACC) 13.9% 13.9% 10.5% 13.9% 10.5% 13.9% 10.5% 13.9% 10.5% 10.5% e. Calculate the current value of operations. (Hint: First calculate the horizon value at the end of the forecast period, which is equal to the value of operations at the end of the forecast period. Assume that the annual growth rate beyond the horizon is equal to the growth rate at the horizon.) (6.5pts) Weighted average cost of capital (WACC) 10.5% Actual Projected 12/31/2017 12/31/18 $7.5 Projected 12/31/19 $47.8 Projected 1 2/31/20 $87.1 Free cash flow Long-term constant growth in FCF Horizon value Projected 12/31/21 $92.3 6.0% 2,175.2 Present value of horizon value Present value of forecasted FCF Value of operations (JPV of HV] + [PV of FCF]) $1,459.0 $172.4 $1,631.4 Total net operating capital $792.0 f. Calculate the price per share of common equity as of 12/31/2017.(3.25pts) 1 Millions except price per share 3 Value of operations 4 + Value of short-term investments 5 Total value of company - Total value of all debt 7- Value of preferred stock 3 Value of common equity Divided by number of shares Price per share Actual 12/31/2017 $1,631.4 $22.0 $1,653.4 $342.0 $15.0 $1,296.4 15 $86.43 2
