You're a banker on a team that's valuing a mature consumer discretionary retail firm's equity. You: - Downloaded the past financial statements and projected them over a 5 year horizon based on a percent-of-sales approach; - Forecast sales to grow at the expected inflation rate; - Calculated expected future operating free cash flows (OFCF) and discounted these along with a perpetuity terminal value to find the firm's model-estimated enterprise value; - Added back excess cash and subtracted interest bearing debt to find the modelestimated equity market capitalisation; and finally - Divided by the current number of shares to find the model-estimated share price. Your model-estimated share price appears far higher than the market share price. Your team all agree that this is likely because the market expect the firm to suffer adversity, particularly from lower net profit margins (Net income / sales) due to the high likelihood of a worsening price war with competitors. You're all trying to think of ways to integrate this view into your DCF model. - Alice recommends increasing financial leverage by borrowing more and using the proceeds to buyback shares, which will reduce net profits through increased interest expense on the loan liability. - Bob recommends growing COGS by the expected inflation rate, and sales at a lower rate, such that the COGS/Sales ratio rises over time. - Claudia also recommends growing COGS rather than sales by the expected inflation rate, and then modelling sales based on a gross profit margin (=(Sales-COGS)/Sales) that rises over time, using the formula Sales = COGS/(1-GrossProfitMargin). - Darren recommends higher capital expenditures and depreciation expenses over the horizon. - Ellen recommends decreasing depreciation expense over the horizon. Whose ideas will correctly build the 'lower net profit margin' forecast into the model? Select one: a. Alice. b. Bob. c. Claudia. d. Darren. e. Ellen