The model of section 5.1 includes costs of goods sold but not selling, general, and administrative (SG&A)
Question:
The model of section 5.1 includes costs of goods sold but not selling, general, and administrative (SG&A) expenses. Suppose that the firm has $200 of these expenses each year, irrespective of the level of sales.
a. Change the model to accommodate this new assumption. Show the resulting profit and loss statements, balance sheets, the free cash flows, and the valuation.
b. Do a data table in which you show the sensitivity of the equity value to the level of SG&A. Let SG&A vary from $0 per year to $600 per year.
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A Revenue x Cost of Goods Sold x SGA Expenses 200 Net Income ...View the full answer
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