What is the expected equity return (or cost of equity capital) for Jack's Food Products? A. 7.89% B. 11.45% C.9.36% D. 12.25% P O R S T U JACK'S FOOD PRODUCTS WACC 2.90% 7.25% 1.000.000 16 150 000 7 8 9 10 11 12 13 14 15 16 17 18 19 Common Equity Industry Beta (Proxy for the Company's Beta) Current Risk-Free Rate Market Risk Premium Number of Common Equity Shares Outstanding Current Price Per Common Equity Share Total Value of Common Equity Expected Equity Return for cost of equity capital) Preferred Equity Cost of Preferred Equity Total Value of Preferred Equity bonds Current Bond Value (per bond) Total Value of Bonds Cost of Debt (Bonds) 2.500,000 S 5 1,043.961.500.000 in 1000 par value bonds so there are 1.500 bonds. 6.75N coupon, 9 years to maturity, current YTM is 5 1565.946 5.75% This is simply the current YTM 21 23 24 25 WACC Calculation Total Enterprise Value of lack's Weight of Common Equity Weight of Preferred Equity Weight of Bonds 20 215946 79.89% 12:37 m ature of 21 8.1894 Weighted Average Cost of Capital 30 Economic Value Added (EVA) $ 135,036 Use actual operating cash flow line 32 from the income statement C28 1 X *012-C19-C25 JACK'S FOOD PRODUCTS Balance Sheet - Historical and Proforma Assets Cash Accounts Receivable Inventory Total Current Assets Net Foxed Assets Total Assets 2016 540,118 S 452.945 $ 1.613,014 $ 2,606,077'S 2.997,854 $ 5,603,931 $ 2017 1.179.724 $ 216,841 S 1,459,774 1,459,774 S S 2,856,339 's 3.111.954 $ 5.968.293 $ 2018 1,578,015 S 312,004 S 1.662,122 S 3,552,141 $ 3,070,819 $ 6.622.960 $ 2019e 2.036.795 $ 401,313 S 1.599,327 S 4,037 435 S 3.127.593 S 7.165.028 $ 2020e 2,048,442 S 500,671 $ 1,745,321 S 4,294,439 S 3.209,734 S 7,504,173 $ 202le 2,134,640 S 593,127 $ 1,799,400 $ 4.527,167 $ 3.287,409 S 7,814,576 $ 2022e 2.207.126 604,889 1,850,900 4,662,915 3.149.501 7.812,416 Liabilities Accounts Payable Accrued Liabilities Total Current Liabilities Bonds (6.75%) Total Liabilities 427,593 $ 47,128 $ 474.721 S 2,500,000 $ 2.974,721 S 324,177 $ 84,900 $ 409,077 $ 2.500,000 $ 2,909,077 $ 309.983 $ 17.067 S 327,050 S 2.500,000 $ 2.827050 $ 412.998 $ 24,500 $ 437,498 $ 2,500,000 $ 2.937,498 $ 508,332 S 46,891 S 555,223 S 2,500,000 $ 3,055.223 S 611,195 S 66,781 $ 677,976 $ 2,500,000 $ 3,177,976 S 603.590 60,546 664,136 2,500,000 3,164,136 $ $ 19 $ Equity Preferred Equity (8.35%) Common Stock Retained Earnings Total Equity $ $ 1.500,000 $ 100,000 $ 1.029,210 $ 2,629.210 S 1.500,000 $ 100.000 $ 1.459,216 $ 3,059.216 $ 1,500,000 100,000 2.195,910 S 3.795.910 1.500.000 $ 100,000 $ 2,627,530 $ 4.227.530 S 1.500,000 $ 100,000 $ 2,848,950 $ 4448.950 S 1.500,000 $ 100,000 $ 3,036,600 S 4,636,600 $ 1.500.000 100,000 3,048,280 4,648,280 $ S IS Balance Sheet WACC Ice Cream Assumption IACKS FOOD PRODUCTS Income Statement - Historical and Proforma International Expansion CAGR Revenue COGS Gross Pro $ $ S Historic - Actual 2016 2017 14,745.122 $ 16,962.468 $ 7.579.050 $ 9.455 167 $ 7,166,072S 7,507 301S 2018 18.379 480 10.192.294 8.187.186 $ $ $ 2019e 19,000,000 $ 10 500,000 $ 8.500.000 S 2020 20,000,000 $ 10.000.000 9.200.000 S 202le 20.750.000 11.000.000 9,750,000 2022e $21.500.000 $ 11,400.000 $ 10.100.000 Operating Expenses Advertising & Marketing Depreciation insurance Office Expenses 16 108 462 $ 23.594 $ 256,133 $ 198.420 $ 225.000 $ 3,034,083 S 177,865 $ 521.589 $ 4.550.146 $ 2615 926 Salaries, Wages Utilities Other Total Operating Expenses Operating Profit 112367 S 1,6215 287,822 209,331 $ 225,000 $ 3 167,99 $ 182,054 500 127 4.703 771S 2.803 530 S 105491 $ 1 4567 $ 294.501 $ 240.826 $ 225.000 $ 209,854 $ 181.506 S 5 42.99 $ 4817,738 369,448 S 113.000 $ 15 000 $ 305,000 S 250,000 $ 240,000 $ 3.450,000 $ 185,000 S 570,000 S 5.128,000 $ 3,372,000 $ 111000 15.000 $ 310.000 $ 260.000 240,000 $ 3.500,000 $ 190,000 $ 500,000 $ 5.200.000 $ 3.992,000 S 113000 $ 15.000 $ 315.000 $ 270,000 $ 240.000 $ 2,650 000 $ 198.000 $ 620 000 $ 5,421 000 $ 4.329,000 $ 113,000 15.000 320.000 280,000 240,000 3.800,000 206,000 640.000 5614 000 4,486,000 S S 21 23 Non-Operating Income (Expenses) PreTax Net Income Taxes et income $ $ $ 294.000 $ 2.321.926 $ 767093 $ 1.554,833 $ 294.000 $ 2.509 530 $ 788.122 $ 1,721,408 $ 294.000 $ 3.075.43 $ 675,149 $ 2,400,299 S 294.000 $ 3.078.000 $ 646 380 $ 2,431.620 S 294.000 $ 60.000 $ 77650 $ 2.921.420 S 294.000 4035 000 $ 47,350 $ 3,187,650 $ 294.000 4192.000 10 3,311.680 EBITDA $ 2,644, 520 $ 2,822 201 $ 3.384,015 $ 3,387,000 $ 4,007000) $ 4344,000 $ 4,501.000 9.27% TERMINAL VALUE Cash Flow From Assets Calculations Operating Cash Flow (OCF) Net Capital Spending IS Balance Sheet WACC 3,144 015 95.429 5 $ 4.394,776 55.703 $ $ 5,686 584 41.774 $ 5 $ 2.33 $ 67,141 7.275,762 $ 62 675 $ 7.SIRAS 150.00 35 Ice Cream Assumptions Ratios IACK'S FOOD PRODUCTS Income Statement - Historical and Proforma International Expansion CAGR 2022e Salaries, Wages Utilities Other Total Operating Expenses Operating Profit Historic - Actual 2016 3.034,083 $ 3,167,899 $ 177.865 S 182,054 S 521.589 $ 500, 1275 4.550 146 $ 4.703.771 $ 27615 926 5 20 530 5 2018 1.200 854 1 81.506 542.993 $17.738 9 $ $ $ $ 2015e 3.450,000 $ 185,000 $ 570.000 S 5.12.000 $ 3372.000 $ Proforma 2020 2021e 3,500,000 $ 3,650,000 $ 190 000 $ 198,000 $ 580.000 S 620.000 S 5.200 000 $ 5.421.000 $ 1992 000 $ 439.000 $ $ $ $ 3,800,000 206,000 640,000 5.614.000 4485.000 9.415 Non Operating income (Expens) Interest Pre-Tax Net Income Taxes $ Net Income $ 294,000 $ 2.321,926 $ 767,093 $ 1,554,833 $ 294,000 $ 2509,530 788,122 5 1.721.408 S 294000 $ ,075.448 $ 675,149 $ 2.400.299 $ 294.000 $ 307 000 5 646,380S 2,431,620 S 294.000 $ 000 $ 776,580 $ 2,921,420 S 294.000 $ 4035.000 $ 847,350 $ 3,187.650 S 194,000 4192.000 880,320 3.311,680 TA $ 2644520 $ 2.822.2015 154015 $ 3.387.000 $ 4.007 000 $ 4344000 S 401.000 S Cash Flow From Assets Calculations Operating Cash Flow (OCF) Net Capital Spending Ending NWC Beginning NWC Change in Net Working Capital CFFA $ 144,015 5 95.429 $ 2.447,262 $ 2.131,356 $ 315 906 $ 4.394,776 155,702) 5 3.225.091 $ 2.447,262 $ 777129 5.686.584 S 41.7745 3.599,987 $ 225.0915 3 74,1465 6.882,383 S 67.141 S 3.739.216 $ 500,937 $ 139.279 $ 7.275.762 5 62.675 5 3.849,191 5 3.739 216 109,975 $ 7.518,858 (152.08 399,779 0.191 149,58 38 42 Discounted Cash Flow (2019-2022)