Question: Managing corporate Value question. In depth solutions ASAP if possible please! Thanks! :) GameShop is going through a fast growth period, which is expected to

Managing corporate Value question. In depth solutions ASAP if possible please! Thanks! :)

Managing corporate Value question. In depth
GameShop is going through a fast growth period, which is expected to end after 5 years. The GameShop value drivers are shown below; Sales Growth 15% per annum Operating profit margin 13% of sales Change in CAPEX 12% of the change in sales Change in Net Working Capital 10% of the change in sales Planning horizon 5 years GameShop sales in 2020 were $3,000,000 and they face a tax rate of 25%. The risk free rate is 3%, the market risk premium is 6% and GameShop has an equity beta of 1.5. The debt rate is 7% and GameShop has a target capital gearing level of 30% debt in its capital structure. GameShop has $500,000 of marketable securities and has E1,750,000 of debt. It is assumed that growth will stop after year 5 and there will be no more Capex nor net working capital requirements. Sales growth will be zero and the profit margin and tax rate will remain the same. Assume that the cash flows will continue forever. Using shareholder value analysis calculate the corporate value and equity value for GameShop. (30 marks)

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