(ALL WORK MUST BE DONE ON EXCEL AND SHOW YOUR FORMULAS, I MUST ABLE TO SEE YOUR CELL REFERENCES)
The following sheet presents the balance sheet and value drivers of Yummy Company, which manufactures a very special tomato sauce. (You might want to copy the table into Excel.)
Yummy Company, Financial Model
Value Drivers
Sales growth
12%
Current assets/Sales
22%
Current liabilities/Sales
20%
Net fixed assets growth rate
5%
Cost of goods sold/sales
45%
Depreciation rate (of average fixed assets at cost)
20%
interest rate on debt
8%
interest earned on cash balances
4%
tax rate
36%
dividend payout ratio
25%
sales
2000000
WACC
16%
long term FCF growth rate
4%
Balance sheet
Cash
460000
Current assets
440000
Fixed Assets
At cost
4000000
Depreciation
500000
Net fixed assets
3500000
total assets
4400000
Current liabilities
400000
Debt
3000000
Stock (1500000 shares, issued at $0.5 each)
750000
accumulated retained earnings
250000
Total Liabilities + Equity
4400000
Additional model assumptions are as follows:
· The FCF evaluation is for a 5-year period. In addition, a terminal value should be determined using the long-term FCF growth rate.
· The debt principal repayments are $300,000 each year.
· Cash is a plug in the model.
a. Make a pro forma model for Yummy and computer the firm value using a DCF valuation model with year-end discounting. (SHOW ALL YOUR WORK ON EXCEL)
b. Show in a graph the sensitivity of the enterprise value to the growth in sales; (SHOW ALL YOUR WORK ON EXCEL)
c. Show in a graph the sensitivity of the enterprise value to the companyâs WACC. (SHOW ALL YOUR WORK ON EXCEL)
(ALL WORK MUST BE DONE ON EXCEL AND SHOW YOUR FORMULAS, I MUST ABLE TO SEE YOUR CELL REFERENCES)
The following sheet presents the balance sheet and value drivers of Yummy Company, which manufactures a very special tomato sauce. (You might want to copy the table into Excel.)
| Yummy Company, Financial Model | |
| Value Drivers | |
| Sales growth | 12% |
| Current assets/Sales | 22% |
| Current liabilities/Sales | 20% |
| Net fixed assets growth rate | 5% |
| Cost of goods sold/sales | 45% |
| Depreciation rate (of average fixed assets at cost) | 20% |
| interest rate on debt | 8% |
| interest earned on cash balances | 4% |
| tax rate | 36% |
| dividend payout ratio | 25% |
| sales | 2000000 |
| WACC | 16% |
| long term FCF growth rate | 4% |
| Balance sheet | |
| Cash | 460000 |
| Current assets | 440000 |
| Fixed Assets | |
| At cost | 4000000 |
| Depreciation | 500000 |
| Net fixed assets | 3500000 |
| total assets | 4400000 |
| Current liabilities | 400000 |
| Debt | 3000000 |
| Stock (1500000 shares, issued at $0.5 each) | 750000 |
| accumulated retained earnings | 250000 |
| Total Liabilities + Equity | 4400000 |
Additional model assumptions are as follows:
· The FCF evaluation is for a 5-year period. In addition, a terminal value should be determined using the long-term FCF growth rate.
· The debt principal repayments are $300,000 each year.
· Cash is a plug in the model.
a. Make a pro forma model for Yummy and computer the firm value using a DCF valuation model with year-end discounting. (SHOW ALL YOUR WORK ON EXCEL)
b. Show in a graph the sensitivity of the enterprise value to the growth in sales; (SHOW ALL YOUR WORK ON EXCEL)
c. Show in a graph the sensitivity of the enterprise value to the companyâs WACC. (SHOW ALL YOUR WORK ON EXCEL)
Related questions
(ALL WORK MUST BE DONE ON EXCEL)
Build a financial model on the following template. Assume that the WACC is 20%. Also assume the debt and equity remain the same. The FCF long-term growth rate is the same as the sales growth rate. ( Copy the table into Excel.)
| Sales growth | 10% | |||||
| Current assets/sales | 15% | |||||
| Current liabilities/Sales | 8% | |||||
| Net fixed assets/sales | 77% | |||||
| cost of goods sold/sales | 50% | |||||
| depreciation rate | 10% | |||||
| interest rate on debt | 10% | |||||
| interest paid on cash and marketable securities | 8% | |||||
| tax rate | 40% | |||||
| dividend payout ratio | 40% | |||||
| Year | 0 | 1 | 2 | 3 | 4 | 5 |
| income statement | ||||||
| sales | 1000 | |||||
| cost of goods sold | 500 | |||||
| interest payment on debt | 32 | |||||
| interest earned on cash and marketable securities | 6 | |||||
| depreciation | 100 | |||||
| profits before tax | 374 | |||||
| taxes | 150 | |||||
| profits after tax | 225 | |||||
| dividends | 90 | |||||
| retained earnings | 135 | |||||
| Balance sheet | ||||||
| cash and marketable securities | 80 | |||||
| current assets | 150 | |||||
| fixed assets | ||||||
| At cost | 1070 | |||||
| depreciation | 300 | |||||
| Net fixed assets | 770 | |||||
| total assets | 1000 | |||||
| current liabilities | 80 | |||||
| debt | 320 | |||||
| stock | 450 | |||||
| accumulated retained earnings | 150 | |||||
| total liabilities + Equity | 1000 |
a. Value the companyâs equity. (SHOW YOUR WORK ON EXCEL)
b. The model in Part A includes cost of goods sold but not selling, general, and administrative (SG & A) expenses. Suppose that the firm has $200 of these expenses each year, irrespective of the level of sales. Change the model to accommodate this new assumption. Show the resulting income statements, balance sheets, the free cash flows (FCF), and the valuation. (SHOW YOUR WORK ON EXCEL)
c. Build a data table in which you show the sensitivity of the equity value to the level of SG & A. Let SG & A vary from $0 per year to $600 per year. (SHOW YOUR WORK ON EXCEL)
d. Back to Part A. Suppose that the fixed assets at cost follow the following step function:
Incorporate this function into the model and solve for the market value of equity. (SHOW YOUR WORK ON EXCEL)
e. Back to Part A again. Make two changes in the model: 1). Let debt be the plug and keep cash constant at its year-0 level. 2). Suppose that the firm has 1,000 shares and that it decides to pay, in year 1, a dividend per share of $0.15. In addition, suppose that it wants this dividend per share to growth in subsequent years by 12% per year. Incorporate these changes into the pro forma model and solve this model to get the market value of equity per share. (SHOW YOUR WORK ON EXCEL)
