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

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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

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