pro forma, wacc, beta, ect.
Project Description:
1) this exercise asks you to forecast splunk (splk) free cash flow and discuss risks the company is facing. you may use and modify if necessary the template below or you may create your own template.a) download 20122014 historical financial data for the company, using one of the sources listed in course content (you may enter numbers in the template below or create your own). b) based on historical financial data calculate ratios that to be used later in proforma financial statements (revenue growth, gross margin etc., see chapter 6 for details);
c) using historical data from a) and ratios from b) create proforma statements (see chapter 6 for details);
d) estimate free cash flows fcf for 20152018 (see chapters 2 and 6 for details);
e) what are risks the company is facing? discuss, how its tornado diagram would look like (see chapter 3 for details). you don't have to build the diagram itself, unless you want to earn bonus points (5 points maximum);
2) cloud nine considersselling anew system, which move allcustomer's applications to the cloud. the management anticipates that new system will have the first yearrevenues of$25,750 k with subsequent annual revenuegrowthof 5%. operating costs are 60% of revenues.the project requires $35 milinvestment in equipment, which will have a five year anticipated life and willbe depreciated using three yearmacrs depreciation method toward a zero book value (three year macrs official;depreciation rates are given below  it does require 4 years, this is not a typo!).however, the company will be able to sell the equipment on the aftermarket atthe end of year 5 for 10% ofits original cost. the company requires an 8% rateof return from its investment and faces a 40% taxrate (overall the company is profitable). inaddition to capital investment, the project requires an outlay of net working capital equal to 20% of revenues in the coming year. i.e., at time 0 (beginning of year 1) net working capital requirement is $5,150 k and will grow in subsequent years. all nwc will be recovered after the project's end.
a) calculate the npv and irr for the project. should the company undertake the project? (see chapter 2 for details)
b) the marketing and operations departmentdisagree with current projectionsfor operating costs, first year revenues and revenue growth . considering one factor at a time, at whatlevel of operating costs, initial revenues, and revenues growth (decline) the project will breakeven (npv=0)? (see chapter 3 for details)c) looking at percentage difference between the predicted level and critical (breakeven) level of each of the three factors, which of them is the most critical? (see chapter 3 for details)
3) umuc inc. has the balance sheet as shown below.
recently the yield on bonds similar to the ones that company has had dropped to 4.25%, so that the market value of the bonds is now about $313millionthe rate on company' shortterm notes is equal the market's rate on these notes, which is 2.65%.a)what are the company's enterprise value and capital structure weights?
b)what is the company's cost of equity according to capm, if the u.s. tbond yield is 2.45 %,the longterm market risk premium is 5.00% and the company's levered equity beta is 1.6?c)what is the company's wacc?
poster's note: i have completed some of the work already.
c) using historical data from a) and ratios from b) create proforma statements (see chapter 6 for details);
d) estimate free cash flows fcf for 20152018 (see chapters 2 and 6 for details);
e) what are risks the company is facing? discuss, how its tornado diagram would look like (see chapter 3 for details). you don't have to build the diagram itself, unless you want to earn bonus points (5 points maximum);
2) cloud nine considersselling anew system, which move allcustomer's applications to the cloud. the management anticipates that new system will have the first yearrevenues of$25,750 k with subsequent annual revenuegrowthof 5%. operating costs are 60% of revenues.the project requires $35 milinvestment in equipment, which will have a five year anticipated life and willbe depreciated using three yearmacrs depreciation method toward a zero book value (three year macrs official;depreciation rates are given below  it does require 4 years, this is not a typo!).however, the company will be able to sell the equipment on the aftermarket atthe end of year 5 for 10% ofits original cost. the company requires an 8% rateof return from its investment and faces a 40% taxrate (overall the company is profitable). inaddition to capital investment, the project requires an outlay of net working capital equal to 20% of revenues in the coming year. i.e., at time 0 (beginning of year 1) net working capital requirement is $5,150 k and will grow in subsequent years. all nwc will be recovered after the project's end.
a) calculate the npv and irr for the project. should the company undertake the project? (see chapter 2 for details)
b) the marketing and operations departmentdisagree with current projectionsfor operating costs, first year revenues and revenue growth . considering one factor at a time, at whatlevel of operating costs, initial revenues, and revenues growth (decline) the project will breakeven (npv=0)? (see chapter 3 for details)c) looking at percentage difference between the predicted level and critical (breakeven) level of each of the three factors, which of them is the most critical? (see chapter 3 for details)
3) umuc inc. has the balance sheet as shown below.
recently the yield on bonds similar to the ones that company has had dropped to 4.25%, so that the market value of the bonds is now about $313millionthe rate on company' shortterm notes is equal the market's rate on these notes, which is 2.65%.a)what are the company's enterprise value and capital structure weights?
b)what is the company's cost of equity according to capm, if the u.s. tbond yield is 2.45 %,the longterm market risk premium is 5.00% and the company's levered equity beta is 1.6?c)what is the company's wacc?
poster's note: i have completed some of the work already.
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