Assume the date is 12/31/2022. Company A is a manufacturer of hiking gear with an avid...

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Assume the date is 12/31/2022. Company A is a manufacturer of hiking gear with an avid customer base that is willing to pay premiums over competing firms' prices to purchase Company A products. As of 12/31/2022, Company A has working capital worth about 400 and fixed assets with a book value of 1,000. The market value of the fixed assets is about 5,000. Company A had sales of 4,500 in 2022 and is expecting higher sales in 2023. COGS typically runs about 65 cents on a dollar of sales. SG&A expense is typically 15 cents on a dollar of sales and is expected to total 750 in 2023. Depreciation expense is included in both COGS and SG&A. In 2023, Company A plans to invest $75 in long-term assets. Furthermore, in 2023 they also plan to invest $50 in WC. In addition, as part of the financing plan for 2023, Company A plans to increase excess cash by $225 (note that all cash at Company A is considered excess cash). As of the end of 2022, Company A had bonds outstanding with a book value of $2,000. The book value of the bonds is lower than the market value of the bonds. Company A had no other debt at the end of 2022. The bonds are of various maturities and have an average yield/interest rate of 7%. Company A has promised and expects to pay its bondholders a total of $200 in coupon payments in 2023. In addition, some of Company A's bonds mature in 2023 and require face value payments totaling $300, in addition to the coupon payments. No other payments are due or expected to be made to bondholders in 2023. The beta of the Company A's bonds is 0.12. Company A has 1,000 shares of common stock outstanding and no other forms of equity. The beta of the Company A's equity is 1.22. The beta of Company A's entire ticket stack (i.e., the firm beta) is 1.0. The market risk premium is 0.05 and the risk-free rate is 0.05. Next year, Company A plans to pay dividends of $250 to its stockholders and to repurchase $200 worth of common shares. No other payments to equity holders are expected. The common share price on 12/31/2022 price is $9.40. Please answer the following questions. a. How much FCF does Company A expect to generate in 2023? b. What is the expected sales growth for 2023? c. What is the discount rate for Company A's equity? d. What is the expected return on Company A's debt in 2024? e. Suppose that Company A's future FCF will grow at a rate of 0% in the years after 2023. How much are the expected future FCFs of Company A worth to the capital market as of 12/31/2022? f. What is the ratio of debt-to-equity in market value terms at Company A? g. How many shares does Company A plan to repurchase in 2023, based on the current share value? h. Is Company A profitable in an economic sense? Why or why not? i. Is Company A generating value for shareholders? What is the dollar amount of this value as of the end of 2022? j. Is the value you computed in part i) different from Company A's equity value? Why or why not? Assume the date is 12/31/2022. Company A is a manufacturer of hiking gear with an avid customer base that is willing to pay premiums over competing firms' prices to purchase Company A products. As of 12/31/2022, Company A has working capital worth about 400 and fixed assets with a book value of 1,000. The market value of the fixed assets is about 5,000. Company A had sales of 4,500 in 2022 and is expecting higher sales in 2023. COGS typically runs about 65 cents on a dollar of sales. SG&A expense is typically 15 cents on a dollar of sales and is expected to total 750 in 2023. Depreciation expense is included in both COGS and SG&A. In 2023, Company A plans to invest $75 in long-term assets. Furthermore, in 2023 they also plan to invest $50 in WC. In addition, as part of the financing plan for 2023, Company A plans to increase excess cash by $225 (note that all cash at Company A is considered excess cash). As of the end of 2022, Company A had bonds outstanding with a book value of $2,000. The book value of the bonds is lower than the market value of the bonds. Company A had no other debt at the end of 2022. The bonds are of various maturities and have an average yield/interest rate of 7%. Company A has promised and expects to pay its bondholders a total of $200 in coupon payments in 2023. In addition, some of Company A's bonds mature in 2023 and require face value payments totaling $300, in addition to the coupon payments. No other payments are due or expected to be made to bondholders in 2023. The beta of the Company A's bonds is 0.12. Company A has 1,000 shares of common stock outstanding and no other forms of equity. The beta of the Company A's equity is 1.22. The beta of Company A's entire ticket stack (i.e., the firm beta) is 1.0. The market risk premium is 0.05 and the risk-free rate is 0.05. Next year, Company A plans to pay dividends of $250 to its stockholders and to repurchase $200 worth of common shares. No other payments to equity holders are expected. The common share price on 12/31/2022 price is $9.40. Please answer the following questions. a. How much FCF does Company A expect to generate in 2023? b. What is the expected sales growth for 2023? c. What is the discount rate for Company A's equity? d. What is the expected return on Company A's debt in 2024? e. Suppose that Company A's future FCF will grow at a rate of 0% in the years after 2023. How much are the expected future FCFs of Company A worth to the capital market as of 12/31/2022? f. What is the ratio of debt-to-equity in market value terms at Company A? g. How many shares does Company A plan to repurchase in 2023, based on the current share value? h. Is Company A profitable in an economic sense? Why or why not? i. Is Company A generating value for shareholders? What is the dollar amount of this value as of the end of 2022? j. Is the value you computed in part i) different from Company A's equity value? Why or why not?

Answer rating: 100% (QA)

a Expected FCF for 2023 Expected sales for 2023 4500 COGS at 65 of sales 4500 065 2925 SGA expenses 4500 015 675 Plus additional SGA specified 750 Tot... View the full answer