The Bergman Corp. sold its shares to the general public in 2019. Financial Management and Risk

1. Question (60%) The Bergman Corporation sold its shares to the general public in 2019. The firm's estimated free cash flow for the next four year is as follows: Sales growth for years 1-3 10.0% Operating profit margin 16.0% Net working capital to sales ratio 13.0% Current assets to sales ratio 18.0% Property, plant, and equipment to sales ratio 18.0% Beginning sales $27,272.73 Cash tax rate 30.0% Total liabilities $ 4,000.00 Cost of capital 12.0% Number of shares 2,000.00 The management of Bergman Corporation wishes to estimate EVA for each of the next three years of the firm operation. Evaluation of the firm's invested capital reveals the following value beginning with the current period (year 0). Furthermore, the firm's investment banker conducted a study of the firm's cost of capital and estimated the weighted average cost of capital to be approximately 12 percent. The management of Bergman Corporation wishes to estimate EVA for each of the next three years of the firm operation. Evaluation of the firm's invested capital reveals the following value beginning with the current period (year 0). Furthermore, the firm's investment banker conducted a study of the firm's cost of capital and estimated the weighted average cost of capital to be approximately 12 percent. Years 2019 $ 4,909.09 Change in current assets Current assets Capital expenditures Property, plant and equipment Total Capital - Total Assets - Non-interest liabilities Required: 2020 $ 354.55 S 5.263.64 $ 490.91 $ 5,400.00 $10,663.64 2021 $ 390.00 $ 5.653.64 $ 540.00 $ 5,940.00 $11,593.64 2022 $ 429.00 $ 6,082.64 $ 594.00 $ 6,534.00 $12,616.64 Thereafter 2023 $ . $ 6,082.64 S $ 6,534.00 $12,616.64 4,909.09 $ 9,818.18 a. Calculate Bergman's EVAs for years, through 4. What does this value tell you about the value being created by Bergman? b. What is Bergman's return on invested capital (ROIC) for each of the year I through 4? Relate the firm's ROIC to your EVA estimate. Calculate the present value of the firm's EVAs and market value added for years I through infinit d. Calculate Berman's market value. a) Calculation of EVA: 4 and beyond Sales Operating income Less cash tax payments Net operating profits after taxes (NOPAT) Less capital charge (Invested Capital K. ) Economic Value Added Invested Capital b) Return on Invested Capital (NOPAT, - IC-1) c) Market Value Added PV(EVA) Plus Invested Capital (year 0) d) Firm Value