You are forecasting company ABCs financial statements for the next 5 years based on following information

(a) You first need to get the income statement and the balance sheet for this fiscal year. According to the management, the sales would be $10,000,000, the cash balance would be $800,000, the stock value would be $4,500,000, the accumulated retained earnings would be $1,500,000, the depreciation induced this year would be $1,000,000, and the accumulated depreciation until the year end would be $3,000,000.

(b) Now you need to extend your model to next five years (from year 1 to year 5). In doing so, you need to make following assumptions: debt will decrease by $800,000 per year until 0, stock will remain unchanged for the next 5 years, depreciation induced in year 1 would be the depreciation rate times the average of fixed assets at cost over year 0 and year 1, so on and so forth, interest payments on debt in year 1 would be the interest rate on debt times the average of debt over year 0 and year 1, so on and so forth, interest earned on cash and marketable securities in year 1 would be the interest rate on cash times the average of cash over year 0 and year 1, so on and so forth.

(c) Project the free cash flows for next five years. Assume weighted average cost of capital for company ABC will be 14% forever, and that long-term growth rate of FCFs will be 6%. Calculate the firm value of ABC. (Firm value should be the PV of all future cash flows plus initial cash and marketable securities.)

(d) Assume the number of shares outstanding is 1,000,000. Calculate the per-share price for company ABC. (Note that the debt balance for company ABC is $3,200,000. Subtracting out debt value from firm value gives the equity value, which gives you the base to calculate per-share price.)

(e) How would the projected stock price change if you increase the estimate of sales growth to 20%?

Sales growth Current assets/Sales Current liabilities/Sales Net fixed assets/Sales Costs of goods sold/Sales Depreciation rate Interest rate on debt Interest earned on cash Tax rate Dividend payout ratio 10% 25% 8% 70% 55% 10% 10% 6% 36% 40% Sales growth Current assets/Sales Current liabilities/Sales Net fixed assets/Sales Costs of goods sold/Sales Depreciation rate Interest rate on debt Interest earned on cash Tax rate Dividend payout ratio 10% 25% 8% 70% 55% 10% 10% 6% 36% 40%