Use the table for the question(s) below. FCF Forecast ($ million) Year 0 1 2 3...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Use the table for the question(s) below. FCF Forecast ($ million) Year 0 1 2 3 4 Sales 240 270 290 310 325.5 Growth versus Prior Year 12.5% 7.4% 6.9% 5.0% EBIT (10% of Sales) 27.00 29.00 31.00 32.55 Less: Income Tax (37%) (9.99) 10.73 11.47 12.44 Less: Increase in NWC (12% of Change in Sales) Free Cash Flow 13.41 3.6 15.87 2.4 2.4 1.86 17.13 18.65 Banco Industries expect sales to grow at a rapid rate over the next 3 years, but settle to an industry growth rate of 7% in year 4. The spreadsheet above shows a simplified pro forma for Banco Industries. Banco industries has a weighted average cost of capital of 10%, $50 million in cash, $70 million in debt, and 18 million shares outstanding. If Banco Industries can reduce their operating expenses so that EBIT becomes 12% of sales, by how much will their stock price increase? Use the table for the question(s) below. FCF Forecast ($ million) Year 0 1 2 3 4 Sales 240 270 290 310 325.5 Growth versus Prior Year 12.5% 7.4% 6.9% 5.0% EBIT (10% of Sales) 27.00 29.00 31.00 32.55 Less: Income Tax (37%) (9.99) 10.73 11.47 12.44 Less: Increase in NWC (12% of Change in Sales) Free Cash Flow 13.41 3.6 15.87 2.4 2.4 1.86 17.13 18.65 Banco Industries expect sales to grow at a rapid rate over the next 3 years, but settle to an industry growth rate of 7% in year 4. The spreadsheet above shows a simplified pro forma for Banco Industries. Banco industries has a weighted average cost of capital of 10%, $50 million in cash, $70 million in debt, and 18 million shares outstanding. If Banco Industries can reduce their operating expenses so that EBIT becomes 12% of sales, by how much will their stock price increase?
Expert Answer:
Answer rating: 100% (QA)
To calculate the increase in the stock price due to the reduction in operating expenses we need to follow these steps 1 Calculate the free cash flows FCF for each year using the given information 2 De... View the full answer
Related Book For
Fundamentals of Financial Management
ISBN: 978-0324302691
11th edition
Authors: Eugene F. Brigham, ? Joel F. Houston
Posted Date:
Students also viewed these finance questions
-
The following additional information is available for the Dr. Ivan and Irene Incisor family from Chapters 1-5. Ivan's grandfather died and left a portfolio of municipal bonds. In 2012, they pay Ivan...
-
A researcher wanted to find out if there was difference between older movie goers and younger movie goers with respect to their estimates of a successful actors income. The researcher first...
-
The following additional information is available for the Dr. Ivan and Irene Incisor family from Chapters 1-6. On December 12, Irene purchased the building where her store is located. She paid...
-
The following sequences of bits (rightmost bit first) appear at the inputs of a 4-bit parallel adder. Determine the resulting sequence of bits on each output. A1 1 0 0 1 A2 1 1 1 0 A3 0 0 0 0 A4 1 0...
-
Given that you know the risk as well as the expected return for two stocks, discuss what process you might utilize to determine which of the two stocks is a better buy. You may assume that the two...
-
Compared to separate sexes and assuming selffertilizing is not possible, what might be one advantage and one disadvantage to hermaphroditism?
-
1. Identify an entrepreneur in your area you would like to interview. 2. Contact the person you have selected and make an appointment. Be sure to explain why you want the appointment and to give a...
-
On December 31, 2013, Main Inc. borrowed $3,000,000 at 12% payable annually to finance the construction of a new building. In 2014, the company made the following expenditures related to this...
-
Blossom Corp. obtained a tradename in January 2024, incurring legal costs of $72,720. The company amortizes the tradename over 8 years using the straight-line method. Blossom successfully defended...
-
The Wilson Company's marketing manager has determined that the price elasticity of demand for its product equals - 2.2. According to studies she carried out, the relationship between the amount spent...
-
Amazons new Flex delivery services has been criticised for terminating delivery workers without due process. Analyse whether it is ethical for Amazon to end workers roles in this way from a Kantian...
-
Is working capital management an operational or policy issue? Discuss critically and justify your position.
-
A manufacturing company produces light bulbs, and they want to assess the quality of their production process. The company randomly selects a sample of 100 light bulbs from a large batch and measures...
-
If the expected basis was $0.75 under, and the actual basis at the time the hedge was lifted was $0.35 under, did the basis strengthen or weaken?
-
YSpace plc is a company listed in the London Stock Exchange. Its accounting information has just been released and the balance sheet is summarized below: YSpace Fixed assets Current assets...
-
Emil purchased an apartment building in 2 0 1 6 2 0 1 6 for $ 2 0 0 , 0 0 0 2 0 0 , 0 0 0 and made improvements over time in the amount of $ 5 0 , 0 0 0 . 5 0 , 0 0 0 . The initial purchase included...
-
Solve the system of linear equations using the Gauss-Jordan elimination method.
-
For the following exercises, rewrite the sum as a product of two functions or the product as a sum of two functions. Give your answer in terms of sines and cosines. Then evaluate the final answer...
-
In the Interim Financial Data section of the FULL COMPANY REPORT, identify the dividend declared date, ex date, and pay date. Explain the significance of these dates. Go back to Overview, and access...
-
Helen Bowers, owner of Helens Fashion Designs, is planning to request a line of credit from her bank. She has estimated the following sales forecasts for the firm for parts of 2006 and 2007: May 2006...
-
The financial ratios investigated thus far are based on book values of debt and equity. Determine whether using the market value of equity (market capitalization found on the OVERVIEW page) makes a...
-
See Table 2.5 showing financial statement data and stock price data for Mydeco Corp. Was Mydeco able to improve its ROIC in 2023 relative to what it was in 2019? TABLE 2.5 2019-2023 Financial...
-
You have an investment opportunity in Japan. It requires an investment of \($0.98\) million today and will produce a cash flow of 107 million in one year with no risk. Suppose the risk-free interest...
-
Motor Company is considering offering a \($1,600\) rebate on its minivan, lowering the vehicles price from \($29,000\) to \($27,400.\) The marketing group estimates that this rebate will increase...
Study smarter with the SolutionInn App