Build a Model: Forecasting and Valuation Start with the partial model in the file Ch09 P11 Build a Model.xlsx on the textbook’s Web site, which contains Henley Corporation’s most recent financial statements. Use the following ratios and other selected information for the current and projected years to answer the next questions.

a. Forecast the parts of the income statement and balance sheet that are necessary for calculating free cash flow.

b. Calculate free cash flow for each projected year. Also calculate the growth rates in free cash flow each year to ensure that there is constant growth (that is, the same as the constant growth rate in sales) by the end of the forecast period.

c. Calculate the return on invested capital (ROIC = NOPAT/[Total net operating capital]) and the growth rate in free cash flow. What is the ROIC in the last year of the forecast? What is the long-term constant growth rate in free cash flow (g_L is the growth rate in FCF in the last forecast period because all ratios are constant)? Do you think that Hensley’s value would increase if it could add growth without reducing its ROIC? Growth will add value if the ROIC > WACC/[1+ WACC]). Do you think that the company will have a value of operations greater than its total net operating capital? Is ROIC > WACC/[1 + g_L]?)

d. Calculate the current value of operations.
How does the current value of operations compare with the current amount of total net operating capital?

e. Calculate the intrinsic price per share of common equity as of 12/31/2018.

Actual Projected 12/31/ 12/31/ 12/31/ 12/31/ 12/31/ 2018 2019 2020 2021 2022 Sales growth rate 15% 10% 6% 6% Costs/sales 72% 72 72 72 72 Depreciation/(Net PPE) 10 10 10 10 10 Cash/sales 1 1 1 1 1 (Accounts receivable)/sales (Inventories)/sales (Net PPE)/sales 1210 75 221 10 20 75 255 10 10 10 20 20 20 75 75 75 (Accounts payable)/sales 2 2 2 2 2 Accruals/sales 5 5 5 5 5 Tax rate 40 40 40 40 40 Weighted average cost 10.5 10.5 10.5 10.5 10.5 of capital (WACC)