Description of this paper

GoPro (GPRO) went public in the summer of 2014.

Description

solution


Question

GoPro (GPRO) went public in the summer of 2014. This exercise asks you to forecast the company's free cash flow and discuss risks the company is facing. You may use;and modify if necessary the template below or you may create your own template.;a) download 2011-2013 historical financial data for the company, using one of the sources listed in Course Content (you may enter numbers in the template below or create;your own). I suggest using the SEC Edgar website (http://www.sec.gov/edgar/searchedgar/companysearch.html) and download S-1 or form 424B from there;b) Based on historical financial data calculate ratios that to be used later in pro-forma financial statements (revenue growth, gross margin etc., see chapter 6 for details);c) Using historical data from a) and ratios from b) create pro-forma statements (see chapter 6 for details);d) Estimate free cash flows FCF for the forecast period (see chapters 2 and 6 for details);e) What are risks the company is facing? Discuss, how its tornado diagram would look like (see chapter 3 for details). You don't have to build the diagram itself, unless you;want to earn bonus points (5 points maximum);Solution Legend;Value given in problem;Formula/Calculation/Analysis required;Qualitative analysis or Short answer required;Goal Seek or Solver cell;Score (filled by professor);Solution;a. Download Financial Data;Dec 31, 2013;Dec 31, 2012;Dec 31, 2011;Score;Max;5;Assets;Current assets;Cash and cash equivalents;Accounts receivable, net of allowance for;doubtful accounts;Inventories, net;Prepaid expenses and other current assets;Total current assets;Property and equipment, net;Intangible assets and goodwill;Other long-term assets;Total Assets;Liabilities;Current liabilities;Accounts payable;Accrued liabilities;Deferred revenues;Income taxes payable;Notes payable and current portion of;long-term debt;Total current liabilities;Long-term debt, less current portion;Other long-term liabilities;Total Liabilities;Redeemable convertible preferred stock;Stockholders equity (deficit);Common stock, par value;Additional paid-in capital;Accumulated deficit;Total stockholders equity (deficit);Total liabilities, redeemable convertible;preferred stock and stockholders equity;(deficit);Income Statement;Revenue;Costs and expenses;Cost of revenues;Sales and marketing;Research and development;General and administrative;Total costs and expenses;Loss from operations;Interest expense;Other income (expense), net;Loss before benefit from income taxes;Income tax expense;Net Income;Deemed dividend to investors in relation to;tender offer;Net income attributable to common;stockholders;2013;Year ended December 31;2012;2011;b. Calculate historical ratios, which you will need to create proforma statements;Score;Max;5;Score;c. Using historical data from a) and ratios from b) create pro-forma statements;Assets;(from a);12/31/2014;12/31/2015;Current assets;Cash and cash equivalents;Accounts receivable, net of allowance for;doubtful accounts;Inventories, net;Prepaid expenses and other current assets;Total current assets;Property and equipment, net;Intangible assets and goodwill;Other long-term assets;Total Assets;Max;5;12/31/2016 12/31/2017;Liabilities;Current liabilities;Accounts payable;Accrued liabilities;Deferred revenues;Income taxes payable;Notes payable and current portion of;long-term debt;Total current liabilities;Long-term debt, less current portion;Other long-term liabilities;Total Liabilities;Redeemable convertible preferred stock;Stockholders equity (deficit);Common stock, par value;Additional paid-in capital;Accumulated deficit;Total stockholders equity (deficit);Total liabilities, redeemable convertible;preferred stock and stockholders equity;(deficit);Income Statement;Revenue;Costs and expenses;Cost of revenues;Sales and marketing;Research and development;General and administrative;Total costs and expenses;Loss from operations;Interest expense;Other income (expense), net;Loss before benefit from income taxes;Income tax expense;Net Income;Deemed dividend to investors in relation to;tender offer;Net income attributable to common;stockholders;(from a);Year ended December 31;2014;2015;2016;2017;d. Using Pro-Forma Statements, estimate FCF for the forecast period;2014;Your Score Maximum;Year;2015;5;2016;2017;EBIT;EBIT(1-T) = NOPAT;Plus: Depreciation Expense;Less: CAPEX;Less: Working Capital Investment;Firm Free Cash Flow;e) What risks is the company facing? Discuss, how its tornado diagram would look like.;Your Score Maximum;5;Bonus: The Tornado diagram itself;Your Score Maximum;5;Page 2;PROBLEM 2;Solution Legend;Value given in problem;Formula/Calculation/Analysis required;Qualitative analysis or Short answer required;Goal Seek or Solver cell;Score (filled by professor);Californian start-up Ayako and Jessie considers installing on campus of a well known university in Maryland a LMS (learning management system), which will;complement existing LMS. The management anticipates that new system will have the first year revenues of $500,000 with subsequent annual growth of 6%.;Operating costs are 55% of revenues.;The project's investment in equipment will have a five year anticipated life and will be depreciated using MACRS depreciation method toward a zero book value;(MACRS depreciation rates are given below). However, the company will be able to sell the equipment on the after-market at the end of year 5 for 5% of its;original cost. The company requires a 12% rate of return from its investment and faces a 38% tax rate (overall the company is profitable). In addition to capital;investment, the project requires an outlay of net working capital equal to 5% of revenues in the coming year. I.e., at time 0 (beginning of year 1) net working capital;requirement is $25,000 and it will grow in subsequent years. All NWC will be recovered after the project's end.;a) Calculate the NPV and IRR for the project. Should the company undertake the project? (see chapter 2 for details);b) The marketing and operations department disagree with current projections for operating costs, first year revenues and revenue growth. Considering one;factor at a time, at what level of operating costs, initial revenues, and revenues growth the project will break-even (NPV=0)? (see chapter 3 for details). Please;make sure that you have enough decimal places for NPV to be equal to $0.00.;c) Looking at percentage difference between the predicted level and critical (break-even) level of each of the three factors, which of them is the most critical? (see;chapter 3 for details);MACRS Depreciation;Year 1;33.33%;Year 2;44.45%;Year 3;14.81%;Year 4;7.41%;Given;Investment cost (today);Project Life;Net Working Capital;Year 1 revenues;Operating costs;After-market value;Revenue annual growth;Required rate of return;Tax rate;$(800,000);5 years;5.00% of revenues;$500,000;55.00% of revenues;5.00% of initial investment;6.00%;12.00%;38.00%;Solution;a.;Year;Cash flow estimation;Investment;Revenues;Operating costs;EBITDA;Less: Depreciation;Incremental EBIT;Less: Taxes;NOPAT;Plus: Depreciation;Change in NWC;Cash from Asset Sale;FFCF;0;$(800,000);1;2;3;4;5;NPV;IRR;Analysis;Score;b) The marketing and operations department disagree with current projections for operating costs, first year revenues and;b. revenue growth. Considering one factor at a time, at what level of operating costs, initial revenues, and revenues growth the;project will break-even (NPV=0)? (see chapter 3 for details);Operating costs (% of revenues);Year 1 revenues;Revenues growth;Cash flow estimation;Investment;Revenues;Operating costs;EBITDA;Less: Depreciation;Incremental EBIT;Less: Taxes;NOPAT;Plus: Depreciation;Change in NWC;Cash from Asset Sale;FFCF;Base case;Break-even;55.00%;$500,000;6.00%;0;$(800,000);1;Maximum;5;Score;Maximum;7;UsingGoalSeek;2;3;4;5;NPV;IRR;c.;Looking at percentage difference between the predicted level and critical (break-even) level of each of the three factors, which of;them is the most critical?;Score;Maximum;3;Base case;Operating costs (% of revenues);Year 1 revenues;Revenues growth;Your answer.;55.00%;$500,000;6.00%;Break-even;Difference (%);PROBLEM 3;Your company has the balance sheet as shown below.;Recently the yield on bonds similar to the ones that company has had dropped and the debt market value reflects this change;The rate on company' short-term notes is equal the market's rate on these notes.;What are the company's enterprise value and capital structure weights?;What is the company's cost of equity according to CAPM, if the U.S. T-bond, the long-term market risk premium and the;company's levered equity beta are as given?;What is the company's WACC?;Existing bonds original coupon rate;Existing bonds' maturity;Current yield on the firm's long-term debt;US Treasury Bond Yield;Estimated Market (Equity) Risk Premium;Company's Levered Beta;Current Share Price;Total number of common shares outstanding;Market value of owners' equity;Current yield on the firm's short-term notes;Dollar value of short term notes outstanding;Corporate tax rate;6.50%;July 31, 2019;3.75%;2.00%;5.50%;1.40;$63.25;10,000,000;3.25%;$10,000,000;35%;Given;Liabilities and Owners' Capital;Current Liabilities;Accounts payable;Notes payable;Other current liabilities`;Total current liabilities;Long-term debt (6.50% interest paid;semiannually, due on July 31, 19y;Total liabilities;Owners' Capital;Common stock (at $1 par value per share);Paid-in-capital;Accumulated earnings;Total owners' capital;Total liabilities and owners' capital;31-Jul-14;Balance Sheet Invested Capital;(Book Values) (Market Values);$17,550,000;10,000,000;22,266,000;$49,816,000;$10,000,000;$100,000,000;$149,816,000;$112,432,223;$122,432,223;10,000,000;$10,000,000;2,000,000;255,000,000;$267,000,000;$416,816,000;Author;Equalsthemarketvalueof;equity;Solution;a) What are the company's enterprise value and capital structure weights?;Enterprise value = Market capitalization + Debt;Notes payable / Enterprise Value;Long-Term Debt / Enterprise Value;Equity / Enterprise Value;Score Maximum;3;b. What is the company's cost of equity according to CAPM?;After-Tax Cost of Sources of Capital;Notes Payable (after-taxes);Long-term Debt (after-taxes);Levered equity beta;Cost of Equity (using the CAPM);Score Maximum;4;1.40;c. What is company's WACC?;Source of Capital;Notes Payable;Long-term Debt;Equity;Score Maximum;Capital;Structure Weight;After-Tax Cost;(Proportion);WACC;Weighted;After-Tax;Cost;3;Solution Legend;Value given in problem;Formula/Calculation/Analysis required;Qualitative analysis or Short answer required;Goal Seek or Solver cell;Score (filled by professor)

 

Paper#29747 | Written in 18-Jul-2015

Price : $37
SiteLock