Q No 2: As an analyst in the valuation team your job is to perform significant financial modeling and analysis. Your company is seeing a new sales strategy that require your input. The strategy will be effective for the upcoming 4 Years. If the company adopts the new strategy, sales will grow at the rate of 15% per year for three years. Other ratios such as: Asset turnover, gross margin, the capital structure and income tax will remain unchanged. However, depreciation would be applicable at 8% of net fixed assets at the starting of the year. Moreover, the target rate of return for the company is 12%. Additional financial information for current year is mentioned below. Income Statement Sales Gross Margin (158) Admin, selling and Distribution expenses (7%) Profit before tax Tax (35% Profit After Taxes Balance Sheet Fixed Assets Current Assets Equity 50.000 7,500 3.500 10,000 3.500 6,500 17,000 12,000 25,000 & Byomo auton A) Determine value of business before adoption of new strategy? (2 Marks) B) What will be the incremental value and value of business after adoption of this new strategy? (5 Marks) C) Provide detailed comments should the company proceeds with this new strategy or Not? (3 Marks) My Show transcribed image text Q No 2: As an analyst in the valuation team your job is to perform significant financial modeling and analysis. Your company is seeing a new sales strategy that require your input. The strategy will be effective for the upcoming 4 Years. If the company adopts the new strategy, sales will grow at the rate of 15% per year for three years. Other ratios such as: Asset turnover, gross margin, the capital structure and income tax will remain unchanged. However, depreciation would be applicable at 8% of net fixed assets at the starting of the year. Moreover, the target rate of return for the company is 12%. Additional financial information for current year is mentioned below. Income Statement Sales Gross Margin (158) Admin, selling and Distribution expenses (7%) Profit before tax Tax (35% Profit After Taxes Balance Sheet Fixed Assets Current Assets Equity 50.000 7,500 3.500 10,000 3.500 6,500 17,000 12,000 25,000 & Byomo auton A) Determine value of business before adoption of new strategy? (2 Marks) B) What will be the incremental value and value of business after adoption of this new strategy? (5 Marks) C) Provide detailed comments should the company proceeds with this new strategy or Not? (3 Marks) My Show transcribed image text
