Refer to the selected income statement and balance sheet items on the following page. Use your ODU University Identification Number (UIN) for the company's sales. The company plans to grow sales by 40% in 2021, 20% in 2022, and 5% indefinitely thereafter. 1. Calculate the company's value of operations. You will need to build a DCF model. Forecast the following items for the next four years as a percent of sales: operating costs, cash, receivables, inventory, net fixed assets; and forecast depreciation expense as a percent of net fixed assets. 2. The company is considering a new inventory management system that will reduce required inventories to 20% of sales. How much would the company be willing to pay today to install the system? (Follow the same forecasting method as in 1.) 3. The company is considering a new cost management system that will reduce operating costs to 40% of sales. How much would the company be willing to pay today to install the system? (Follow the same forecasting method as in 1, and do not implement the inventory management system too. Assume they are mutually exclusive projects.) Select items from Income Statement: 12 Months Ended on October 31, 2020 $1131,020 YOUR ODU UIN Consolidated Statements of Income - USD ($) Sin Millions Revenues: Revenue from sales Operating costs and expenses: Cost of goods sold Selling, general and administrative expenses Depreciation and amortization: Depreciation expense $ $ 340,000 212,500 $ $ 50,000 Select items from Balance Sheet: As of October 31, 2020 $ $ $ 27,625 153,000 314,500 Consolidated Balance Sheets - USD ($) $ in Millions Current assets: Cash and cash equivalents Receivables Inventories Long-term assets: Property, plant and equipment Accumulated depreciation Current liabilities: Accounts Payable Accrued liabilities Equity: Common stock Retained earnings $ $ 510,000 (10,000) $ $ 17,000 5,100 $ $ 629,650 343,375 Other data: WACC = 15% Effective Tax Rate = 20% Refer to the selected income statement and balance sheet items on the following page. Use your ODU University Identification Number (UIN) for the company's sales. The company plans to grow sales by 40% in 2021, 20% in 2022, and 5% indefinitely thereafter. 1. Calculate the company's value of operations. You will need to build a DCF model. Forecast the following items for the next four years as a percent of sales: operating costs, cash, receivables, inventory, net fixed assets; and forecast depreciation expense as a percent of net fixed assets. 2. The company is considering a new inventory management system that will reduce required inventories to 20% of sales. How much would the company be willing to pay today to install the system? (Follow the same forecasting method as in 1.) 3. The company is considering a new cost management system that will reduce operating costs to 40% of sales. How much would the company be willing to pay today to install the system? (Follow the same forecasting method as in 1, and do not implement the inventory management system too. Assume they are mutually exclusive projects.) Select items from Income Statement: 12 Months Ended on October 31, 2020 $1131,020 YOUR ODU UIN Consolidated Statements of Income - USD ($) Sin Millions Revenues: Revenue from sales Operating costs and expenses: Cost of goods sold Selling, general and administrative expenses Depreciation and amortization: Depreciation expense $ $ 340,000 212,500 $ $ 50,000 Select items from Balance Sheet: As of October 31, 2020 $ $ $ 27,625 153,000 314,500 Consolidated Balance Sheets - USD ($) $ in Millions Current assets: Cash and cash equivalents Receivables Inventories Long-term assets: Property, plant and equipment Accumulated depreciation Current liabilities: Accounts Payable Accrued liabilities Equity: Common stock Retained earnings $ $ 510,000 (10,000) $ $ 17,000 5,100 $ $ 629,650 343,375 Other data: WACC = 15% Effective Tax Rate = 20%
