TRX Industries Inc. (TRXN)

TRX is a recent spin-off from publicly held company being financed through a private equity created North Point Operations. The firm is relatively well established in the AI/AR realm of the general technology industry and is located in the I-128 corridor of Boston, Massachusetts.

At this point Massapequa Enterprises (hired by TRX as a consultant) has estimated probable unit sales for the next five years to be 321,987 340,375 369,970 377,321 and 382,296 units based on present day assumptions of industry trends. Due to the nature of the sub-sector of the high-tech industry the firm resides in, the company concentrates its efforts on a single product line in order to focus and maximize the firms presence in certain geographical areas of the country- that product increases the speed of AI infusion into manufacturing processes and is called infusion app 3AI. The average selling price (ASP) is estimated to be $929 per unit for the first three years going forward and $619 in years four and five. Beyond this time frame growth in unit sales are expected to be 3.15% indefinitely.

At this point Massapequa Enterprises conducted a marketing study and has determined that the company can manufacture infusion app 3AI at a variable cost per unit expected to be $513.25 growing at 2.95% per year for the first 5 years and 3.79% per year indefinitely thereafter while overall fixed costs are estimated to be $11,679,000 annually for the first year and grow 4.66% per year indefinitely.

Upfront capital expenditures are projected to come in at $51.73 million upfront and due to the operating nature of the company and infusion app 3AI in particular, it is deemed by the IRS to be depreciated on the five-year MACRS schedule. In the terminal phase of growth, it is projected that TRX will undergo a corporate restructuring which will result in a change in corporate strategy to that of a service based maintenance orientation in the pursuit of an annuitized business with respect to future AI opportunities. As such, average annual depreciation charges of $3.92 Million derived from a terminal year capital investment of $19,600,000 is expected for ongoing operational support.

In support of sales, working capital investments are projected to be 11.25% of yearly sales for the first 5 years and then is projected to slow to a 4% annual growth rate thereafter.

The marginal corporate income tax rate is expected to average 21% barring any changes to the corporate tax code and the projected annual growth rate of Free Cash Flow (FCF) in the terminal phase is expected to be approximately 3.47% indefinitely. Historically, the debt-equity ratio has consistently been 137% for which TRXs current debt level is $273.227 Million with an average maturity of 5 years and an interest rate on this debt averaging 8.125%. The equity beta is deemed to be 1.6235 while the risk-free rate of return is given as 3.07% and the market risk premium is 8.85%. Currently there are 8,617,737 shares of common stock outstanding.

You have been hired by TRX to determine the following:

Operating Cash Flow for each of the first 5 years and the Terminal Phase

Free Cash Flow for each of the first 5 years and the Terminal Phase

What the Asset Beta (Industry Beta) is that TRX can use in its analysis

What the appropriate discount rate is for TRX in valuing the firm and hence stock price

What the asset value of the firm is (TRX)

What the equity value of the firm is (TRX)

What the appropriate stock price is for TRX

Make recommendations to improve the stock price

Your presentation must be in the form of a single professionally prepared Excel spreadsheet-multiple documents are not allowed! Focus on eye appeal that will create a flowing development throughout so clean it up and label all references. You must NOT have constant number inputs which would destroy cell referencing for future use. Be careful, you will be penalized for any and all cell referencing that is destroyed. Additionally, you are to have separate worksheet tabs for Data Entry, Operating Cash Flow, Free Cash Flow, Asset Beta, Discount Rate, Asset Value, Equity Value, Stock Price, and Recommendations. Do not submit your computer project early as I may come back with additional requirements! Should there be additional requirements-you will need a separate worksheet tab for each and every additional requirement that is assigned! When you are done, properly title and submit your work through Moodle by the deadline which is the start of class on Thursday, June 14^th in the year of our Lord 2018. If you have any questions, feel free to contact me and good luck with your presentation!