Question

In: Finance

Progressive Studios​ Corporation’s sales in Year 2019 is 800 million dollars.​ Let’s make the following assumptions...

Progressive Studios​ Corporation’s sales in Year 2019 is 800 million dollars.​ Let’s make the following assumptions on the​ firm’s performance to forecast its free cash flow in Year​ 2020:

​• Sales grow​ 25% from Year 2019 to Year 2020.

​• Corporate tax rate is​ 25%.

​• COGS is​ 40% of the sales in Year 2020.

​• SG&A is​ 20% of the sales in Year 2020.

​• Depreciation is​ 10% of the sales in Year 2020.

​• Net working capital amounts to​ 30% of the sales for each year​ (i.e., NWC for 2019 is​ 30% sales in​ 2019, NWC for 2020 is prediced to be​ 30% sales in​ 2020).

​• Capital expenditure is​ 5% of the sales in Year 2020.

a. What is the forcasted EBIT of Progressive Studios Corporation in Year​ 2020? Progressive Studios ​Corporation’s forecasted EBIT in Year 2020 is $___.(Round to the nearest​ dollar.)

b. What is Progressive Studios ​Corporation’s forecasted free cash flow in Year​ 2020? Progressive Studios ​Corporation’s forecasted free cash flow in Year 2020 is ​$___.​(Round to the nearest​ dollar.)

c. Assume that starting from Year 2021 and​ beyond, Progressive​ Studios' free cash flow will grow​ 2% per year. The weighted average cost of capital is ​ 12%. The corporation has debt outstanding of​ $100 million and cash of​ $50 million in Year 2019. The number of shares outstanding is 100 million shares. What is the price of Progressive Studios stock will be consistent with the​ forecast? The price per share of $___ will be consistent with the forecast

Solutions

Expert Solution

Particulars 2020
Sales with growth @ 25% = 800*(1.25) = 1000
COGS = 40%*1000 = 400
SG&A = 20%*1000 = 200
Depreciation = 10%*1000 = 100
NWC = 30%*100 = 300
Capital expenditure = 5%*1000 = 50

a)

Sales 1000
-COGS 400
-SG&A 200
-Depericiation 100
=Earning before interest and tax =300

b)

Net operating income after tax = EBIT *(1-tax) = 300*(1-0.25) = 225
+ Depericiation = 100
- Capital expenditure 50
+ NWC 300
Free cash flow (FCF) = =575

c) Enterprise value = FCF/ (W-G) (from DCF method)

W= Weighted average cost of capital = 12%

G =Growtg rate = 2%

Enterprise value = 575/ (12%-2%) 5750

Enterprise value = Value of equity+ value of debt -cash

Thus, value of equity = 5750- 100 +50 = 5700

Price per share = Value of equity / Number of shares =5700 / 100 = $57/share

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

Sales 3 million dollars per year Cost of goods 1.7 million dollars per year Cash Expenses...
Sales 3 million dollars per year Cost of goods 1.7 million dollars per year Cash Expenses 725 thousand dollars per year Depreciation Expense 125 thousand dollars per year Cash on the balance sheet 150 thousand dollars Receivables on the balance sheet 75 thousand dollars Inventory on the balance sheet 300 thousand dollars Fixed asset net of depreciation on the balance sheet 450 thousand dollars Total Current Liabilities on the balance sheet 175 thousand dollars Total Long Term Debt on the...
The sales of a company (in million dollars) for each year are shown in the table...
The sales of a company (in million dollars) for each year are shown in the table below. Is there evidence of a linear relationship between the two variables, and are they positively correlated? x (years since 2010) 5 6 7 8 9 y (sales in millions) 12 19 29 37 45                                               a. Assign variables and sketch the scatter gram b. State the Null and Alternative Hypotheses as if a complete hypothesis test had been conducted. c. Find the linear...
The sales of a company (in million dollars) for each year are shown in the table...
The sales of a company (in million dollars) for each year are shown in the table below. Is there evidence of a linear relationship between the two variables, and are they positively correlated? x (years since 2010) 5 6 7 8 9 y (sales in millions) 12 19 29 37 45    a. Assign variables and sketch the scatter gram. b. State the Null and Alternative Hypotheses as if a complete hypothesis test had been conducted. c. Find the linear...
The sales of a company in million dollars) for each year are shown in the table below.
Problem 3: The sales of a company in million dollars) for each year are shown in the table below. x (year)20052006200720082009y (sales)1219293745a) Find the least square regression line y -ax+b. b) Use the least squares regression line as a model to estimate the sales of the company in 2012. 
15-3: Light Feet Corporation’s value of operations is estimated to be about $800 million. The compay...
15-3: Light Feet Corporation’s value of operations is estimated to be about $800 million. The compay has $160 million in debt. It has no preferred stock, but has 25 million shares of stock outstanding. It Feet has decided to distribute $60 million, which it presently is holding in short-term investments. Assume that the company has not yet made the distribution. What is the intrinsic value of equity? What is its intrinsic per share stock price? Now suppose that the company...
Rayco Corporation’s free cash flow in 2019 is $24 million. This is expected to grow by...
Rayco Corporation’s free cash flow in 2019 is $24 million. This is expected to grow by 6% for the next three years. Thereafter, it grows by 2% each year forever. The market value of debt outstanding is $17 million, and weighted average cost of capital is 15%. Determine the terminal value of the firm. What model would you use to value the firm? Determine the value of the firm, and the value of equity.
The following inventory information is available: Transaction Date Units Dollars Beginning Balance 1/1/2019 800 $6.00 Purchase...
The following inventory information is available: Transaction Date Units Dollars Beginning Balance 1/1/2019 800 $6.00 Purchase 1/10/2019 600 $5.50 Purchase 1/20/2019 950 $5.25 Purchase 1/25/2019 350 $5.00 Sale throughout month 1700 $11.75 Calculate cost of goods available for sale, cost of goods sold, gross profit, gross profit margin and ending inventory using average cost, LIFO and FIFO inventory methods. The company uses the periodic inventory system. Then state which inventory method would provide the highest net income and Which inventory...
You have the following information about a company. ·       Sales in 2019 were £2000 million. Sales are...
You have the following information about a company. ·       Sales in 2019 were £2000 million. Sales are expected to grow at a rate of 15% in 2020, and afterwards the growth rate will drop to 3%. ·       EBIT margin is expected to stay constant at 15%. ·       The corporate tax rate is 40%. ·       Net working capital each year is expected to stay constant at 10% of next year's sales. ·       To generate sales growth, each year t, capital expenditure net of depreciation (i.e., Capex-...
Joshua Studios expects the following sales in March, April and May: Sales $ Purchases $ March...
Joshua Studios expects the following sales in March, April and May: Sales $ Purchases $ March 240,000 180,000 April 250,000 210,000 May 300,000 225,000 The controller has determined that the company collects sales in the following pattern: 30% in the month of sale, 50% in the first month after sale, 10% in the second month after sale, and 10% uncollectable. Based on the agreed terms of trade with suppliers, 40% of purchases are expected to be paid in the month...
Powell Panther Corporation: Income Statements for Year Ending December 31 (Millions of Dollars) 2019 2018 Sales...
Powell Panther Corporation: Income Statements for Year Ending December 31 (Millions of Dollars) 2019 2018 Sales $ 1,820.0 $ 1,400.0 Operating costs excluding depreciation and amortization 1,547.0 1,190.0 EBITDA $ 273.0 $ 210.0 Depreciation and amortization 46.0 36.0 Earnings before interest and taxes (EBIT) $ 227.0 $ 174.0   Interest 40.0 30.8 Earnings before taxes (EBT) $ 187.0 $ 143.2   Taxes (25%) 74.8 57.3 Net income $ 112.2 $ 85.9 Common dividends $ 101.0 $ 68.7 Powell Panther Corporation: Balance Sheets...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT