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Grand Canyon FIN650 module 5 chapter 13 problem




Question;The Henley Corporation is a privately held company specializing;in lawn care products and services. The most recent financial statements are;shown below.;Income Statement for the Year Ending December 31 (Millions of;Dollars);2010;Net Sales;$ 800.0;Costs (except depreciation);$ 576.0;Depreciation;$ 60.0;Total operating costs;$ 636.0;Earning before int. & tax;$ 164.0;Less interest;$ 32.0;Earning before taxes;$ 132.0;Taxes (40%);$ 52.8;Net income before pref. div.;$ 79.2;Preferred div.;$ 1.4;Net income avail. for com.;div.;$ 77.9;Common dividends;$ 31.1;Addition to retained earnings;$ 46.7;Number of shares (in;millions);10;Dividends per share;$ 3.11;Balance;Sheets for December 31 (Millions of Dollars);Assets;2010;Liabilities and Equity;2010;Cash;$ 8.0;Accounts Payable;$ 16.0;Marketable Securities;20.0;Notes payable;40.0;Accounts receivable;80.0;Accruals;40.0;Inventories;160.0;Total current liabilities;$ 96.0;Total current assets;$ 268.0;Long-term bonds;$ 300.0;Net plant and equipment;600.0;Preferred stock;$ 15.0;Total Assets;$ 868.0;Common Stock (Par plus PIC);$ 257.0;Retained earnings;200.0;Common equity;$ 457.0;Total liabilities and;equity;$ 868.0;Projected ratios;and selected information for the current and projected years are shown below.;Inputs;Actual;Projected;Projected;Projected;Projected;2010;2011;2012;2013;2014;Sales Growth Rate;15%;10%;6%;6%;Costs / Sales;72%;72%;72%;72%;72%;Depreciation / Net PPE;10%;10%;10%;10%;10%;Cash / Sales;1%;1%;1%;1%;1%;Acct. Rec. / Sales;10%;10%;10%;10%;10%;Inventories / Sales;20%;20%;20%;20%;20%;Net PPE / Sales;75%;75%;75%;75%;75%;Acct. Pay. / Sales;2%;2%;2%;2%;2%;Accruals / Sales;5%;5%;5%;5%;5%;Tax rate;40%;40%;40%;40%;40%;Weighted average cost of;capital (WACC);10.5%;10.5%;10.5%;10.5%;10.5%;a. Forecast the parts of;the income statement and balance sheets necessary to calculate free cash;flow.b. Calculate free cash;flow for each projected year. Also;calculate the growth rates of free cash flow each year to ensure that there;is constant growth (i.e., the same as the constant growth rate in sales) by;the end of the forecast period.;c. Calculate operating;profitability (OP=NOPAT/Sales), capital requirements (CR=Operating;capital/Sales), and return on invested;capital (ROIC=NOPAT/Operating capital at beginning of year). Based on the spread between ROIC and WACC, do you think that;the company will have a positive market value added (MVA= Market value of company - book value of;company = Value of operations - Operating capital)?;d. Calculate the value of;operations and MVA. (Hint: first;calculate the horizon value at the end of the forecast period, which is equal;to the value of operations at the end of the forecast period. Assume that the annual growth rate beyond;the horizon is 6 percent.);e. Calculate the price;per share of common equity as of 12/31/2010.


Paper#49112 | Written in 18-Jul-2015

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