Show all work/calculations in the most simplest for no excel please Web-surfing exercise: Find a fast-growth publicly traded firm with financial statements posted on the firms Web page. Relate that firms financial statements to those of the examples in this chapter. 343 344 Formulate the process by which you would project that firms financial statements into the future in order to conduct a valuation. 2. Using a free stock quoting and research site on the Web (e.g., http://www.bloomberg.com or http://money.cnn.com), examine the current price for an Internet company. Relate the financial data you can find on the firm to the current stock price. Chapter 9: Exercises/Problems: # ***** p. 344 2. [Venture Present Values] The TecOne Corporation is about to begin producing and selling its prototype product. Annual cash flows for the next five years are forecasted as: A. Assume annual cash flows are expected to remain at the $800,000 level after Year 5 (i.e., Year 6 and thereafter). If TecOne investors want a 40 percent rate of return on their investment, calculate the ventures present value. B. Now assume that the Year 6 cash flows are forecasted to be $900,000 in the stepping-stone year and are expected to grow at an 8 percent compound annual rate thereafter. Assuming that the investors still want a 40 percent rate of return on their investment, calculate the ventures present value. C. Now extend Part B one step further. Assume that the required rate of return on the investment will drop from 40 percent to 20 percent beginning in Year 6 to reflect a drop in operating or business risk. Calculate the ventures present value. D. Lets assume that TecOne investors have valued the venture as requested in Part C. An outside investor wants to invest $3 million in TecOne now (at the end of Year 0). What percentage of ownership in the venture should the TecOne investors give up to the outside investor for a $3 million new investment? Chapter 9: Softec Mini Case: p. 348 A- F only MINI CASE: SoftTec Products company The SoftTec Products Company is a successful, small, rapidly growing, closely held corporation. The equity owners are considering selling the firm to an outside buyer and want to estimate the value of the firm. Following is last years income statement (2010) and projected income statements for the next four years (20112014). Sales are expected to grow at an annual 7 percent rate beginning in 2015 and continuing thereafter. ACTUAL PROJECTED [$ THOUSANDS] 2010 2011 2012 2013 2014 Net sales $150.0 $200.0 $250.0 $300.0 $350.0 Cost of goods sold -75.0 -100.0 -125.0 -150.0 -175.0 Gross profit 75.0 100.0 125.0 150.0 175.0 SG&A expenses -30.0 -40.0 -50.0 -60.0 -70.0 Depreciation -7.5 -10.0 -12.5 -15.0 -17.5 Earnings before interest and taxes 37.5 50.0 62.5 75.0 87.5 Interest -3.5 -3.5 -3.5 -3.5 -3.5 Earnings before taxes 34.0 46.5 59.0 71.5 84.0 Taxes (40% rate) -13.6 -18.6 -23.6 728.6 -33.6 Net income $ 20.4 $ 27.9 $ 35.4 $ 42.9 $ 50.4 Selected balance sheet accounts at the end of 2010 were as follows. Net fixed assets were $50,000. The sum of the required cash, accounts receivable, and inventories accounts was $50,000. Accounts payable and accruals totaled $25,000. Each of these balance sheet accounts was expected to grow with sales over time. No changes in interest-bearing debt were projected, and there were no plans to issue additional shares of common stock. There are currently 10,000 shares of common stock outstanding. Data have been gathered for a comparable publicly traded firm in the same industry that Soft-Tec operates in. The cost of common equity for this other firm, Wakefield Products, was estimated to be 25 percent. SoftTec has survived for a period of years. Management is not currently contemplating a major financial structure change and believes a single discount rate is appropriate for discounting all cash flows. A. Project SoftTecs income statement for 2015. B. Determine the annual increases in requir…
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