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Since Rockwell's sales are only to new housing construction, you decide to a) estimate national housing starts and b) use that forecast to estimate...

Question Step 1. a)

TAKE HOME PART FINAL EXAM FALL SEMESTER 2012 Due December 14, 2012 in room 640 TNRB Before 5 PM *This is an individual assignment - Consult TA or professor with questions You have been hired to help Rockwell plan (budget) sales for the next several years. Since Rockwell's sales are only to new housing construction, you decide to a) estimate national housing starts and b) use that forecast to estimate Rockwell's sales. Step 1: Forecast housing starts annually for 2013 and 2014 Procedure: a) Fill in the attached table using the data from Remember that SAAR data is to be averaged (not summed) to get annual data. Include the table with your submission. b) Using the time from 2002 to 2012, run a correlation matrix using annual housing starts, the annual unemploymnet rate, real GDP and the Federal Funds interest rate. Also include in the correlation matrix the idea that starts may lag those three macro- variables by one year, using the values for the NEXT YEAR of the three marco-variables - the first year of housing starts will be 2002, use the 2003 unemployment rate, GDP and Fed Funds as the first observation of the series. In addition, since the banking sector was broken in 2008, include the Proxy variable for financing in the matrix. Include the matrix with your submission. c) Pick the two highest correlated variables with housing starts and run a regression with those two independent variables with housing starts as the dependent (y) variable. 1) Show the regression results 2) Give the regression equation with t-statistics 3) Fill in the table with your model housing start forecast. The 2013 and 2014 estimates will be in thousands rounded to the nearest whole number Step 2: Using the outlook for housing, suggest a sales forecast for Rockwell. Estimate sales by arriving at the Rockwell's sales per housing start for 2012 and apply the same percentage to 2013 and 2014. Estimate pre-tax profit for 2013 and 2014 by assuming those years have the same pre-tax percentage of sales as the year 2011. Sales forecast Pre-tax Profit (in 000's, rounded to whole number) 2011 Actual = 2,498 279 2012 Forecast = 3,200 185 2013 Forecast = 2014 Forecast = Step 3: Mr. Cook asks you to estimate Rockwell's equity value on 12/31/14 so that he might approach potential buyers of the company. Use 2 valuation methods (averaged) to arrive at your answer. Apply the income statement line item % of sale from 2011 to the 2014 sales estimate for any additional information you require. For cash and debt items use the 2011 balance sheet as is for 2014. Assumptions: All line items on the 2014 income statement remain the same percentage of sales as in 2011 Assume income taxes are paid by the LLC owners instead of the corporation Rockwell has 1.9 million share outstanding Questions: What price do you recommend Mr. Cook ask for? Is this an equity or enterprise valuation? What dollar value would go to the shareholders NOTE : Rockwell is an LLC and income taxes are passed through to owners.
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Proxy for Husts GDP GDP+1 FF FF+1 RU RU+1 Financing 2002 0.50 2003 0.50 2004 0.75 2005 1.00 2006 1.00 2007 0.75 2008 0.00 2009 (1.00) 2010 (1.00) 2011 13,565 0.15 8.10 (0.90) 2012 710 13,565 13,800 0.15 0.20 8.10 7.75 (0.75) 2013 13,800 14,100 0.20 0.20 7.75 7.00 (0.50) 2014 14,100 14,380 0.20 0.25 7.00 6.50 (0.10) 2015 14,380 14,750 0.25 0.25 6.50 6.90 0.00
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