You have been given the Balance Sheet and Income Statement for Winnebago as of August 25, 2006.The value of the stock of a company can be determined by calculating the present value of the cashflows generated by the company and available to stock holders.Winnebago has historically repurchased large amounts of stock with their excess cash flow.These stock repurchases have the same impact as dividends (e.g., in the MM world) so we will assume that Winnebago will pay out all available cash flows above some minimum level required for Net Working Capital in dividends in the future.As we have shown earlier in the semester if Winnebago reinvests these cash flows in projects that earn the return the market requires for Winnebago, the value of the stock will not change, so this assumption is appropriate.

The spreadsheet "projection template WGO" contains a summarized income statement and a projection for 2007, and a worksheet to calculate beta.You should use this as the start of a valuation template you will need to create to calculate the cashflow projections needed to value the common stock of Winnebago Corporation as of 8/25/2006.Use this spreadsheet to answer the following questions.Please upload your spreadsheet by 9am on April 22, and hand in a printed copy before class on April 22.

1. Use the excel spreadsheet to project the net income for Winnebago from assumptions about key revenue and expense items.Use the following assumptions to calculate the projected net income, operating cash flow and investment cash flow for Winnebago.

Sales Growth through 2011 make your assumption and justify it

(e.g., use the growth rate from 2006 to 2007)

Sales Growth after 2011 half of the growth rate through 2011, forever

Variable Costs as a % of Sales 84.0%

Fixed Costs as a % of Sales4.0%

Depreciation expense and investment in fixed assets (Property Plant and Equipment, PP&E) will grow at the same rate as Sales.

Because we assume they pay out all excess cash, Financial Income will be zero in the future.

Tax Rate35.0%

1. Calculate the Operating Cashflows from 2007 - 2011.

1. Assume the company will need to hold Net Working Capital (including cash) equal to 4% of the next year's sales going forward.You will also need to project 2012 Sales to calculate the NWC in 2011.

1. Calculate the Total Cashflows from 2007 - 2011.

1. Go to Yahoo Finance and download historical data for WGO's stocks. Use the second sheet "WGO_price" in projection template WGO.xls to calculate its beta.

1. Winnebago has no long-term debt. (See the 2006 report.) Calculate the price of Winnebago stock from the cashflows you calculated above.Assume the Market Return is expected to be 13.5% and the Risk Free rate is 2.5%.Assume there are 31,143,000 shares outstanding.

1. Suppose Winnebago decides to become levered. How would you expect this decision to affect the total value of the firm? Please be specific about the assumptions you make when answering this question.

Actual Actual Actual Projected Projected Projected Projected Projected 2005 2006 Assumptions 2004 2007 2008 2009 2010 2011 2012 Cost of Capital 1 , 714 , 154 1 , 280 , 651 2.5% Sales 991 , 974 864 , 4 985 , 419 1 , 123 , 378 1 , 459 , 942 1 , 664 , 334 Risk free rate 1 , 897 , 341 844, 998 1 , 075 , 747 1 , 226 , 351 Market risk premium Variable Costs 942 , 357 748 , 867 827 , 752 943, 638 1 , 398 , 041 Beta Gross Profit 171 , 797 146, 976 115, 536 157 , 667 179 , 741 204, 904 233, 591 266, 293 Fixed Costs 51, 371 38 , 723 41 , 803 38, 431 44, 935 51 , 226 58 , 398 66 , 573 Required Return on Equity 6\ UID UNFCCC XX| ~| OU`D| UN|~| Depreciation expense 9. 628 9. 999 10 , 635 12, 124 13 , 821.25 15 , 756.22 17 , 962.09 20 , 476. 78 Sales Growth through 2011 14.0% Financial Income 1 , 436 2 , 635 5 , 097 Pre Tax Income 112 , 234 100 , 889 68, 195 107 , 112 120 . 984 137 , 922 157 , 231 179 , 243 Depreciation and 14% Income Taxes 41, 593 35 , 817 23, 451 37, 489 42, 34 4 4 8 , 273 55 , 031 62 , 735 PP &E growth Net Income 70 , 641 65 , 072 44 , 744 69 , 623 78 , 640 89 , 649 102 , 200 116 , 508 Var . Cost as % of Sales 84. 0% + Depreciation Fixed Cost as % of Sales 4 . 0% 17 Operating Cash Flow WC as % of sales 4. 0%\ 18 Net Investment in Net Working Capital $716 10 , 431 14 New Investment in Fixed Assets| $ ( 10 , 588 ) $ ( 33 , 294 )| 35%/0\ ( 9, 653 ) ( 4 , 8:30 )| $ ( 8 , 000 ) Tax rate 20 21 Constant Growth after 2011 7.0%* 22 Total Cashflow 23 Net Working Capital $164 , 175 $197 , 469 $187 , 038 Shares outstanding 24 ( 1000s )\ 31 , 143 20 28 Total Cashflows by Year From Above Discount Factors PV of Cashflows Total Market Value of Equity # of Shares Outstanding* 31 , 143 50.00* 35 Price per Share* 36 38 34 40 41 42