Based on the embedded chart in cells D92:J106, what is the relationship between equity value and sales growth?

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144 Chapter 5 This model implies that depreciation equals capital expenditure. This can be seen in the free cash flows: A 41 Year 42 Free cash flow calculation 43 Profit after tax 97 98 99 100 101 102 103 104 105 106 44 Add back depreciation 45 Subtract increase in current assets 46 Add back increase in current liabilities 47 Subtract increase in fixed assets at cost 48 Add back after-tax interest on debt 49 Subtract after-tax interest on cash and mkt. securities 50 Free cash flow 5.7 Sensitivity Analysis B 0 A B 90 Data table: The effect of sales growth (cell B2) on equity valuation 91 Growth 92 93 94 95 96 0% 2% 4% 6% 8% 10% 12% 14% 16% 1 251 113 (15) 8 (113) 19 (7) 255 D 1,093 1,105 1,113 1,117 2 1,115 1,108 1,095 1,076 1,049 D 284 124 (17) 9 Equity value (124) 19 (15) 281 1,120 1,110 1,100 1.090 1,080 1,070 1,060 1,050 1,040 E 3 0% E 1,108 144 Chapter 5 This model implies that depreciation equals capital expenditure. This can be seen in the free cash flows: A 41 Year 42 Free cash flow calculation 43 Profit after tax 97 98 99 100 101 102 103 104 105 106 44 Add back depreciation 45 Subtract increase in current assets 46 Add back increase in current liabilities 47 Subtract increase in fixed assets at cost 48 Add back after-tax interest on debt 49 Subtract after-tax interest on cash and mkt. securities 50 Free cash flow 5.7 Sensitivity Analysis B 0 A B 90 Data table: The effect of sales growth (cell B2) on equity valuation 91 Growth 92 93 94 95 96 0% 2% 4% 6% 8% 10% 12% 14% 16% 1 251 113 (15) 8 (113) 19 (7) 255 D 1,093 1,105 1,113 1,117 2 1,115 1,108 1,095 1,076 1,049 D 284 124 (17) 9 Equity value (124) 19 (15) 281 1,120 1,110 1,100 1.090 1,080 1,070 1,060 1,050 1,040 E 3 0% E 1,108

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