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.

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 Sales 4.0%

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 Rate 35.0%

2. Calculate the Operating Cashflows from 2007 2011.

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

4. Calculate the Total Cashflows from 2007 2011.

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

6. 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.

2 Actual Actual Actual Projected Projected Projected Projected 2010 Assumptions 2005 2007 2008 2011 2012 Risk free rate 1,114,154 Variable Costs 942,357 Sales 991,974 884,403 115,536 10,635 985,419 1,123,378 1,684,3341,897,341 1,398,041 266,293 66,573 20,476.78 Market risk premium Required Return on Equity Sales Growth through 2011 Depreciation and 844998748,867 827.752 943,638075,747 1,226,351 233,591 Gross Profit Fixed Costs Depreciation expense Financial Income Pre Tax Income 171,797 51,371 9,628 146,976 38,723 204,904 51,226 157,667 38,431 12,124 13,821.25 15,756.22 17,962.09 44,935 58,398 9,999 14.0% 20,984 157,231 55,031 102,200 PP&E growth 37.489 69,623 48,273 89,649 62,735 116,508 Net Income 70,641 65,072 44,744 78,640 var. Cost as % of Sales Fixed Cost as % of Sales WC as % of sales 84.0% Operating Cash Flow Net Investment in Net Working Capital $716 (33,294)$ 10,431 (10,588)(9,653) (4,830) Tax rate Constant Growth after 2011 Shares outstanding 35% New Investment in Fixed Assets Total Cashflow Net Working Capital (8,000) $164,175 $197,469 $187,038 (1000s) 31,143 Total Cashflows by Year From Above Discount Factors PV of Cashflows Total Market Value of Equity # of Shares Outstanding Price per Share 2 Actual Actual Actual Projected Projected Projected Projected 2010 Assumptions 2005 2007 2008 2011 2012 Risk free rate 1,114,154 Variable Costs 942,357 Sales 991,974 884,403 115,536 10,635 985,419 1,123,378 1,684,3341,897,341 1,398,041 266,293 66,573 20,476.78 Market risk premium Required Return on Equity Sales Growth through 2011 Depreciation and 844998748,867 827.752 943,638075,747 1,226,351 233,591 Gross Profit Fixed Costs Depreciation expense Financial Income Pre Tax Income 171,797 51,371 9,628 146,976 38,723 204,904 51,226 157,667 38,431 12,124 13,821.25 15,756.22 17,962.09 44,935 58,398 9,999 14.0% 20,984 157,231 55,031 102,200 PP&E growth 37.489 69,623 48,273 89,649 62,735 116,508 Net Income 70,641 65,072 44,744 78,640 var. Cost as % of Sales Fixed Cost as % of Sales WC as % of sales 84.0% Operating Cash Flow Net Investment in Net Working Capital $716 (33,294)$ 10,431 (10,588)(9,653) (4,830) Tax rate Constant Growth after 2011 Shares outstanding 35% New Investment in Fixed Assets Total Cashflow Net Working Capital (8,000) $164,175 $197,469 $187,038 (1000s) 31,143 Total Cashflows by Year From Above Discount Factors PV of Cashflows Total Market Value of Equity # of Shares Outstanding Price per Share