Income Statement The revenue from the current businesses will increase at an annual rate of 5.0% since
Question:
Income Statement
The revenue from the current businesses will increase at an annual rate of 5.0% since 2020
The acquisition will add $75.0 million of incremental revenue in 2020 and the incremental revenue will increase at an annual rate of 5.0% thereafter
Cost of services will be 62.5% of revenue
SG&A expense will be 9.5% of revenue
Depreciation expense will be 7.5% of revenue
Interest expense will be based on the average long-term debt outstanding in the
current and previous years
Interest rate is assumed to constant at 7.5%
• Tax rate is assumed to be constant at 25.0%
Balance Sheet
Constant operating cash level of $10.0 million
Days sales in accounts receivable is 35 days
Inventory turnover (=cost of services/inventory) is 30 (inventory consists of recyclable materials resold)
Net capital spending is at 8.0% of revenue
Other long-term assets is at 1.0% of revenue
Days days cost of services (COS) in accounts payable is 50 days
Accrued expense is at 2.0% of COS
Other long-term liabilities is at 1.5% of COS
Dividend payout ratio is assumed to be 50% in the following five years
WCC has 10 million shares outstanding
You are a financial analyst in the financial planning and analysis department of WCC. You have been assigned the following:
Complete a five-year forecast based on the above assumptions.
Based on 2020, explain if WCC is, more or less leveraged than the competitors. Please
use three measures: (1) interest coverage ratio, (2) Debt/EBITDA, and (3) Debt/Equity
Fundamentals of Corporate Finance
ISBN: 978-0077861629
8th edition
Authors: Richard Brealey, Stewart Myers, Alan Marcus