Use the following assumptions to answer the questions below:

• Operating ratios remain unchanged.
• Sales will grow by 10%, 8%, 5%, and 5% for the next four years.

• The target weighted average cost of capital (WACC) is 9%.

	Actual	Forecast
Inputs	2013	2014	2015	2016	2017
Sales growth rate:		10%	8%	5%	5%
Op. costs/Sales:	90%	90%	90%	90%	90%
Depr./FA	10%	10%	10%	10%	10%
Cash/Sales:	1%	1%	1%	1%	1%
Acct. rec. /Sales	14%	14%	14%	14%	14%
Inv./Sales:	20%	20%	20%	20%	20%
FA/Sales:	25%	25%	25%	25%	25%
AP & accr. / Sales:	4%	4%	4%	4%	4%
Tax rate:	40%	40%	40%	40%	40%
Rate on all debt		8.0%	8%	8%	8%
Div. growth rate:	5%	10%	10%	10%	10%
Target WACC		9%

1. For each of the next four years, forecast the items in the above table.
2. Using the forecasted items in the section f, calculate for each of the next four years the net operating profit after taxes (NOPAT), net operating working capital, total operating capital, free cash flow, (FCF), annual growth rate in FCF, and return on invested capital. 1. What does the forecasted free cash flow in the first year imply about the need for external financing?

2. Compare the forecasted ROIC compare with the WACC. What does this imply about how well the company is performing?
3. Calculate the Economic Value Added (EVA) to see whether the company is creating value or destroying. EVA = (ROIC WACC) (Beg. Capital)

4. Assume that FCF will continue to grow at the growth rate for the last year in the forecast horizon (Hint: 5%).

5. What is the terminal value at 2017?

6. What is the present value of the terminal value?

7. What is the present value of the forecasted FCF? (Hint: use the free cash flows for 2014 through 2017). What is the current value of operations?

8. Using information from the 2013 financial statements, what is the current estimated intrinsic stock price?