Year Income statement Sales Cost of goods sold Depreciation Interest payments on debt Interest earned on...
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Year Income statement Sales Cost of goods sold Depreciation Interest payments on debt Interest earned on cash and marketable securities Profit before tax Taxes (40%) Profit after tax Dividends Retained Earnings Balance sheet Cash Current assets Fixed assets Fixed assets at cost Depreciation Net fixed assets Total assets Current liabilities Debt Equity Stock (paid-in capital) Accumulated retained earnings Total liabilities and equity 2017 $ $ $ $ $ $ $ $ $ $ $ $ 10,000,000.00 (5,000,000.00) (1,000,000.00) (320,000.00) 64,000.00 $ $ 3,744,000.00 (1,497,600.00) 2,246,400.00 (898,560.00) 1,347,840.00 800,000.00 1,500,000.00 $ 10,700,000.00 $ (3,000,000.00) 7,700,000.00 $ $ 10,000,000.00 800,000.00 3,200,000.00 $ 4,500,000.00 $ 1,500,000.00 $ 10,000,000.00 Project five years of financial statements for Cooper Dental, a company that manufactures and sells dental equipment. Calculate FCFs and run a DCF analysis to estimate the equity value. Conduct a sensitivity analysis in the end. Starting point is Cooper Dental's current income statement and balance sheet for year-end 2017. Projection assumptions: -Cooper Dental's current level of sales is $10,000,000. Over the 5-year horizon of the financial planning model, the firm expects its sales to grow at a rate of 10% per year. -Current assets will be 15% of annual firm sales. -Current liabilities will be 8% of annual firm sales. -Net fixed assets are assumed to be 77% of annual sales. -Annual depreciation charge is 10% of average value of the fixed assets on the books during the year. -Cost of goods sold is assumed to be 50% of sales. -Interest rate on debt is 10% of average value of debts. -Interest earned on cash is 8% of the average balance of cash. -Tax rate is 40% of firm's profit before taxes. -Dividends: The firm pays out 40% of its profits after taxes as dividends to shareholders. -Debt: Cooper Dental currently has debt of $3,200,000. The company's agreement with the bank specifies that it will repay $800,000 of this debt in each of the next 4 years. Once the debt is fully replaid, the company intends to stay debt-free. -Stock: Company has 1 million shares outstanding and does not intend either to issue new stock or to repurchase stock over the 5-year model horizon. Stock item remains at 2016 level. -Cash: This item is the plug. The cash item is defined so that the left-hand side of the balance sheet always equals the right-hand side of the balance sheets: Cash = total liabilities and equity - current assets - net fixed assets. For DCF valuation, assume the WACC for Cooper Dental is 14% and the long-term growth rate of FCFs is 6%. Analysis: -What's the firm's value based on DCF valuation? -What's the estimated value per share for Cooper Dental? Using mid-year discounting? -If the current market value of Cooper Dental share is $10, what's our recommendation for this stock? -Conduct a sensitivity analysis showing the value per share as a function of sales growth rate. -Another sensitivity analysis showing the value per share as a function of long-term FCF growth and WACC. -Conduct a scenario analysis showing the value per share under optimistic/pessimistic scenarios. Optimistic: Sales growth 18%, COGS/sales 40%, WACC 12%, FCF growth 8%. Pessimistic: Sales growth 5%, COGS/sales 55%, WACC 16%, FCF growth 3%. Use Sheet "8" for this assignment. After completing DCF valuation and sensitivity analysis as shown in the video lecture, do a scenario analysis for Cooper Dental's DCF valuation, using scenario manager under What-if Analysis. Optimistic: sales growth 18%, COGS/Sales 0.4, WACC 12%, FCF growth rate 8% Pessimistic: sales growth 5%, COGS/Sales 0.55, WACC 16%, FCF growth rate 3% Generate a summary report showing the results of estimated value per share (from both normal method and mid-year discounting method). Clearly label the variable names in the summary report. Year Income statement Sales Cost of goods sold Depreciation Interest payments on debt Interest earned on cash and marketable securities Profit before tax Taxes (40%) Profit after tax Dividends Retained Earnings Balance sheet Cash Current assets Fixed assets Fixed assets at cost Depreciation Net fixed assets Total assets Current liabilities Debt Equity Stock (paid-in capital) Accumulated retained earnings Total liabilities and equity 2017 $ $ $ $ $ $ $ $ $ $ $ $ 10,000,000.00 (5,000,000.00) (1,000,000.00) (320,000.00) 64,000.00 $ $ 3,744,000.00 (1,497,600.00) 2,246,400.00 (898,560.00) 1,347,840.00 800,000.00 1,500,000.00 $ 10,700,000.00 $ (3,000,000.00) 7,700,000.00 $ $ 10,000,000.00 800,000.00 3,200,000.00 $ 4,500,000.00 $ 1,500,000.00 $ 10,000,000.00 Project five years of financial statements for Cooper Dental, a company that manufactures and sells dental equipment. Calculate FCFs and run a DCF analysis to estimate the equity value. Conduct a sensitivity analysis in the end. Starting point is Cooper Dental's current income statement and balance sheet for year-end 2017. Projection assumptions: -Cooper Dental's current level of sales is $10,000,000. Over the 5-year horizon of the financial planning model, the firm expects its sales to grow at a rate of 10% per year. -Current assets will be 15% of annual firm sales. -Current liabilities will be 8% of annual firm sales. -Net fixed assets are assumed to be 77% of annual sales. -Annual depreciation charge is 10% of average value of the fixed assets on the books during the year. -Cost of goods sold is assumed to be 50% of sales. -Interest rate on debt is 10% of average value of debts. -Interest earned on cash is 8% of the average balance of cash. -Tax rate is 40% of firm's profit before taxes. -Dividends: The firm pays out 40% of its profits after taxes as dividends to shareholders. -Debt: Cooper Dental currently has debt of $3,200,000. The company's agreement with the bank specifies that it will repay $800,000 of this debt in each of the next 4 years. Once the debt is fully replaid, the company intends to stay debt-free. -Stock: Company has 1 million shares outstanding and does not intend either to issue new stock or to repurchase stock over the 5-year model horizon. Stock item remains at 2016 level. -Cash: This item is the plug. The cash item is defined so that the left-hand side of the balance sheet always equals the right-hand side of the balance sheets: Cash = total liabilities and equity - current assets - net fixed assets. For DCF valuation, assume the WACC for Cooper Dental is 14% and the long-term growth rate of FCFs is 6%. Analysis: -What's the firm's value based on DCF valuation? -What's the estimated value per share for Cooper Dental? Using mid-year discounting? -If the current market value of Cooper Dental share is $10, what's our recommendation for this stock? -Conduct a sensitivity analysis showing the value per share as a function of sales growth rate. -Another sensitivity analysis showing the value per share as a function of long-term FCF growth and WACC. -Conduct a scenario analysis showing the value per share under optimistic/pessimistic scenarios. Optimistic: Sales growth 18%, COGS/sales 40%, WACC 12%, FCF growth 8%. Pessimistic: Sales growth 5%, COGS/sales 55%, WACC 16%, FCF growth 3%. Use Sheet "8" for this assignment. After completing DCF valuation and sensitivity analysis as shown in the video lecture, do a scenario analysis for Cooper Dental's DCF valuation, using scenario manager under What-if Analysis. Optimistic: sales growth 18%, COGS/Sales 0.4, WACC 12%, FCF growth rate 8% Pessimistic: sales growth 5%, COGS/Sales 0.55, WACC 16%, FCF growth rate 3% Generate a summary report showing the results of estimated value per share (from both normal method and mid-year discounting method). Clearly label the variable names in the summary report.
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Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
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