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##### FIN 630 Miidterm Exam 3 Problems

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Question;Problem 1GoPro (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),a. Download Financial Datab. Calculate historical ratios, which you will need to create proforma statementsc. Using historical data from a) and ratios from b) create pro-forma statementsd. Using Pro-Forma Statements, estimate FCF for the forecast periode) What risks is the company facing? Discuss, how its tornado diagram would look like.Problem 2Californian 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)a)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) 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? Problem 3Your 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 changeThe 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?a) What are the company's enterprise value and capital structure weights? b) What is the company's cost of equity according to CAPM? c) What is company's WACC?

Paper#48576 | Written in 18-Jul-2015

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