You are required to assess the dividend policy of Omega Inc. The company started its operations on 1st of January, 2015 with no cash and no debt. You have the following information about the company finances. 2015 2016 2017 1 200 120 1 000 100 40 50 1 100 110 45 60 50 70 Revenues Net Income Depreciation Capital Expenditures Non-cash Working Capital (End of year) Total Debt (End of year) Dividend payout ratio 10 30 60 90 10 0% 15 40% 50% Evaluate the amount of cash, the company had at the end of each year from 2015 till 2017? Assume now that the company plans to double its investments in non-cash working capital in early 2018 as share of the sales revenue, compared to 2017 (e.g. in 2018 there will be a jump from 5% to 10% and in the following years the level of non-cash working capital stays at 10% of sales revenue). The company hopes that these investments will enable the company to increase sales revenue by 20% per year (e.g. for years 2018, 2019 and 2020). When preparing the forecasts, it can be assumed that the company's net profit margin and dividend payout ratio will remain the same as in 2017. The company's investments and depreciation are forecasted to grow by 10% per year. In addition, we expect the company to repay all loans taken by the end of 2017 (e.g. 90 million) in three equal annual instalments. (Hint: if for some reason there is not enough cash to pay out dividends and service the debt, adjust dividend payout accordingly) Now forecast the cash balance for the end of next three years (e.g. for 2018, 2019 and 2020) Assume that the optimal cash balance for the company is 100 starting from 2018, estimate the amount of cash that can be used to repurchase the stock each year? Hint: For computing the cash balance, you may rely on FCFE by using the following from for all the years: Revenues Net Income + Depreciation - Capital Expenditures - Change in Working capital -/+ Debt decrease increase = FCFE - Dividends paid = Change in cash balance Cash balance You are required to assess the dividend policy of Omega Inc. The company started its operations on 1st of January, 2015 with no cash and no debt. You have the following information about the company finances. 2015 2016 2017 1 200 120 1 000 100 40 50 1 100 110 45 60 50 70 Revenues Net Income Depreciation Capital Expenditures Non-cash Working Capital (End of year) Total Debt (End of year) Dividend payout ratio 10 30 60 90 10 0% 15 40% 50% Evaluate the amount of cash, the company had at the end of each year from 2015 till 2017? Assume now that the company plans to double its investments in non-cash working capital in early 2018 as share of the sales revenue, compared to 2017 (e.g. in 2018 there will be a jump from 5% to 10% and in the following years the level of non-cash working capital stays at 10% of sales revenue). The company hopes that these investments will enable the company to increase sales revenue by 20% per year (e.g. for years 2018, 2019 and 2020). When preparing the forecasts, it can be assumed that the company's net profit margin and dividend payout ratio will remain the same as in 2017. The company's investments and depreciation are forecasted to grow by 10% per year. In addition, we expect the company to repay all loans taken by the end of 2017 (e.g. 90 million) in three equal annual instalments. (Hint: if for some reason there is not enough cash to pay out dividends and service the debt, adjust dividend payout accordingly) Now forecast the cash balance for the end of next three years (e.g. for 2018, 2019 and 2020) Assume that the optimal cash balance for the company is 100 starting from 2018, estimate the amount of cash that can be used to repurchase the stock each year? Hint: For computing the cash balance, you may rely on FCFE by using the following from for all the years: Revenues Net Income + Depreciation - Capital Expenditures - Change in Working capital -/+ Debt decrease increase = FCFE - Dividends paid = Change in cash balance Cash balance