View the step-by-step solution to: 2006 10.0% 3.9% -0.8% 25.8% 37.9% 3.3% 2007 10.0% 3.8% 0.0% 25.2%

Recalculate the forecasts in Table 8-4 (attached) assuming that the NOPAT profit margin is held steady for the first five years of the forecast and then declines by 0.1 percentage points per year thereafter (keeping all the other assumptions unchanged). Show all calculations.

Table+8-4.xls

2006
10.0%
3.9%
-0.8%
25.8%
37.9%
3.3%

2007
10.0%
3.8%
0.0%
25.2%
37.9%
3.3%

2008
10.0%
3.8%
0.0%
25.4%
37.9%
3.3%

2009
10.0%
3.7%
0.0%
25.6%
37.9%
3.3%

2010
10.0%
3.7%
0.0%
25.9%
37.9%
3.3%

2011
10.0%
3.6%
0.0%
26.0%
37.9%
3.3%

2012
10.0%
3.5%
0.0%
26.0%
37.9%
3.3%

2013
10.0%
3.4%
0.0%
26.3%
37.9%
3.3%

2014
10.0%
3.2%
0.0%
26.5%
37.9%
3.3%

2015
10.0%
3.1%
0.0%
26.8%
37.9%
3.3%

2016
10.0%
3.1%
0.0%
26.8%
37.9%
3.3%

344,823
13,448
1,069
12,379
12,379

379,306
14,414
1,195
13,218
13,218

417,236
15,855
1,325
14,530
14,530

458,960
16,982
1,469
15,512
15,512

504,856
18,680
1,635
17,044
17,044

555,342
19,992
1,806
18,186
18,186

610,876
21,381
1,986
19,394
19,394

671,963
22,847
2,210
20,636
20,636

739,160
23,653
2,450
21,203
21,203

813,075
25,205
2,725
22,480
22,480

894,383
27,726
2,998
24,728
24,728

Beginning Balance Sheet
Beg. Net working capital
+ Beg. Net long-term assets
= Net operating assets

(2,768)
88,344
85,576

95,585
95,585

105,978
105,978

117,494
117,494

130,758
130,758

144,389
144,389

158,828
158,828

176,726
176,726

195,877
195,877

217,904
217,904

239,695
239,695

Net debt
+ Preferred stock
+ Common stock
= Net capital

32,405
53,171
85,576

36,227
59,358
95,585

40,166
65,812
105,978

44,530
72,964
117,494

49,557
81,201
130,758

54,723
89,665
144,389

60,196
98,632
158,828

66,979
109,747
176,726

74,237
121,640
195,877

82,586
135,319
217,904

90,844
1
148,850
239,696

15.7%
23.3%
13.6%
7.6%
4.0

15.1%
22.3%
11.7%
11.6%
4.0

15.0%
22.1%
10.9%
10.9%
3.9

14.5%
21.3%
10.9%
10.9%
3.9

14.3%
21.0%
11.3%
11.3%
3.9

13.8%
20.3%
10.4%
10.4%
3.8

13.5%
19.7%
10.0%
10.0%
3.8

12.9%
18.8%
11.3%
11.3%
3.8

12.1%
17.4%
10.8%
10.8%
3.8

11.6%
16.6%
11.2%
11.2%
3.7

11.6%
16.6%
10.0%
10.0%
3.7

Sales growth rate
NOPAT margin
WC to sales
LT assets to sales
Debt ratio
After tax cost of debt
Income Statement
Sales
- Net operating profit after tax
- Net interest expense after tax
= Net Income
- Preferred dividends
= Net income to common

Ratios
Operating return on assets
Return on equity
Book value of assets growth
Book value of equity growth
Net operating asset turnover

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Cash flows
Net Income
Change in net working capital
Change in net long-term assets
Change in net debt
Free cash flow to equity

12,379
(2,768)
(7,241)
3,822
6,191

13,218
(10,393)
3,939
6,764

14,530
(11,516)
4,364
7,378

15,512
(13,264)
5,027
7,275

17,044
(13,631)
5,166
8,579

18,186
(14,439)
5,472
9,220

19,394
(17,899)
6,784
8,279

20,636
(19,151)
7,258
8,744

21,203
(22,027)
8,348
7,525

22,480
(21,790)
8,259
8,948

24,728
239,695
(90,844)
173,578

Net operating profit after tax
- Change in net working capital
- Change in net long-term assets
= Free cash flow to capital

2006
13,448
(2,768)
(7,241)
3,439

2007
14,414
(10,393)
4,021

2008
15,855
(11,516)
4,339

2009
16,982
(13,264)
3,718

2010
18,680
(13,631)
5,049

2011
19,992
(14,439)
5,553

2012
21,381
(17,899)
3,482

2013
22,847
(19,151)
3,696

2014
23,653
(22,027)
1,626

2015
25,205
(21,790)
3,415

2016
27,726
239,695
267,421

Equity Valuation
Abnormal earnings
Abnormal ROE
Free cash flows to equity

5,998
12.7%
6,191

6,926
11.7%
6,764

7,553
11.5%
7,378

7,778
10.7%
7,275

8,437
10.4%
8,579

8,682
9.7%
9,220

8,939
9.1%
8,279

9,003
8.2%
8,744

8,309
6.8%
7,525

8,136
6.0%
8,948

8,950
6.0%
173,578

Asset Valuation
Abnormal NOPAT
Abnormal operating ROA
Free cash flow to capital

5,318
6.2%
3,439

5,333
5.6%
4,021

5,787
5.5%
4,339

5,820
5.0%
3,718

6,258
4.8%
5,049

6,275
4.3%
5,553

6,292
4.0%
3,482

6,058
3.4%
3,696

5,045
2.6%
1,626

4,504
2.1%
3,415

4,955
2.1%
267,421

Discount factors
Equity
Assets

0.9042
0.9132

0.8175
0.8340

0.7392
0.7617

0.6683
0.6956

0.6043
0.6352

0.5463
0.5801

0.4940
0.5298

0.4466
0.4838

0.4038
0.4418

0.3651
0.4035

0.3301
0.3685

Growth factors
Equity
Assets

1.00
1.00

1.12
1.12

1.24
1.24

1.37
1.37

1.53
1.53

1.69
1.69

1.85
1.86

2.06
2.07

2.29
2.29

2.54
2.55

2.80
2.80

Cost of capital
Equity
Assets

0.106
0.095

2007
6,926
0.8175
5,662

2008
7,553
0.7392
5,583

2009
7,778
0.6683
5,198

2010
8,437
0.6043
5,098

2011
8,682
0.5463
4,743

2012
8,939
0.4940
4,416

2013
9,003
0.4466
4,021

2014
8,309
0.4038
3,356

2015
8,136
0.3651
2,971

2016
8,950

+
=

Valuation
Abnormal earnings
Discount factor
Present value of abnormal earnings
Beginning book value
PV abnormal earnings 2006 to 2015
PV abnormal earnings 2016 on

2006
5,998
0.9042
5,423
53,171
46,472
544,646
644,289

313475.75

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