Question
You have concluded that due expected restructuring of the companys operations, changes in various assumptions need to be made, as listed below: The growth rate
You have concluded that due expected restructuring of the companys operations, changes in various assumptions need to be made, as listed below:
- The growth rate in sales will be 5% per year for 8 years, and then 3% per year thereafter.
- The net operating profit margin will increase to 3.6% each year.
- End-of-year net operating assets will increase to 36% of sales each year.
- The differential between nonoperating assets and nonoperating liabilities will remain at the same amount as in the prior year.
- The company will face a weighted average cost of capital of 10%.
Based on your new projection of the implied value of the companys stock and given its current stock price of $59.40, would you be inclined to recommend purchasing or selling the companys stock?
(millions) | 2020 | 2019 | (millions) | 2020 | 2019 | |
Cash & equivalents | $5,683 | $4,059 | Sales | $256,776 | $194,579 | |
Marketable securities | 2,373 | 2,522 | Less: Cost of goods sold | 158,719 | 156,447 | |
Accounts receivable, net | 19,617 | 17,631 | Gross profit | 98,057 | 38,132 | |
Inventories | 15,516 | 16,450 | Less: Selling, gen. & admin. exp. | 81,699 | 25,244 | |
Other current assets | 7,113 | 4,581 | Less: Depreciation & amort. exp. | 4,371 | 2,718 | |
Total current assets | 50,302 | 45,243 | Operating profit (EBIT) | 11,987 | 10,170 | |
Property, plant, & equipment, gross | 28,934 | 26,869 | Less: Interest expense | 3,035 | 2,619 | |
Less: Accumulated depreciation | 16,890 | 15,520 | Other income (expense) | 454 | 6,074 | |
Property, plant, & equipment, net | 12,044 | 11,349 | Gain/(loss) on sale of assets | 79 | 0 | |
Right-of-use leased assets | 20,860 |
| Earnings before tax | 9,485 | 13,625 | |
Other long-term investments | 56,744 | 56,140 | Less: Income tax expense | 2,366 | 2,002 | |
Other noncurrent assets | 82,499 | 83,724 | Net income | $7,119 | $11,623 | |
Total assets | $222,449 | $196,456 | ||||
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Current portion of long-term debt | $4,364 | $1,985 | Miscellaneous data | 2020 | ||
Current lease liabilities | 1,934 |
| Depreciation expense | $4,371 |
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Accounts payable | 23,093 | 20,316 | Amortization expense | $0 |
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Taxes payable | 1,830 | 1,939 | Cash flow from operating activities | $13,924 |
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Other accrued expenses | 12,133 | 10,711 | Capital expenditures made | $5,525 |
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Deferred revenue | 7,870 | 6,586 | Dividends paid | $4,366 |
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Other current liabilities | 2,079 | 2,472 | Common shares outstanding | 1,304 |
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Total current liabilities | 53,303 | 44,009 | Current stock price | $59.40 |
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Long-term debt | 64,699 | 71,444 | ||||
Long-term lease liabilities | 18,926 |
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Deferred taxes | 8,294 | 7,677 | ||||
Other long-term liabilities | 14,057 | 14,783 |
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Total liabilities | 159,279 | 137,913 |
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Com. stock and add. paid-in capital | 45,816 | 45,317 |
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Retained earnings | 46,283 | 41,136 |
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Less: Treasury stock | 28,929 | 27,910 |
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Total equity | 63,170 | 58,543 |
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Total liabilities and equity | $222,449 | $196,456 |
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