3e Chapter09_solutions_Prob10.xls

# 3e Chapter09_solutions_Prob10.xls - Assumptions Sales...

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Assumptions Sales growth for years 1-4 10.00% Gross profit margin 60.00% Operating expense (excluding depreciation) to sales ratio 30.00% Current assets to sales ratio 15.00% Accruals and Payables to sales ratio 5.00% Net working capital to sales ratio 10.00% Average depreciable life of PP&E in year 0 5 Depreciable life of new PP&E 10 Net Property, plant and equipment to sales ratio 40.00% Initial sales in year 0 \$ 100,000 Corporate income tax rate 30.00% Total liabilities in year 0 \$ 25,000 Debt to equity ratio 1.00 Interest cost on long-term debt 8.00% Risk free rate of interest 7.00% Market risk premium 5.00% Lev ered equity cost of capital 15.28% Unlevered equity cost of capital 13.84% No. of shares outstanding 2,000,000

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Problem 9-11 Given Years 1 2 3 4 Sales \$ 110,000.00 \$ 121,000.00 \$ 133,100.00 \$ 146,410.00 Operating income (Earnings Before Interest and Taxes) 25,000.00 27,900.00 31,090.00 34,599.00 Less: Cash tax payments (7,500.00) (8,370.00) (9,327.00) (10,379.70) Net operating profits after taxes (NOPAT) 17,500.00 19,530.00 21,763.00 24,219.30 Plus: Depreciation expense 8,000.00 8,400.00 8,840.00 9,324.00 Less: Investments
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