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SVA EXERCISE Given: ($ ‘000) Baseline (last year) sales: $200,000 Sales growth

01 / 10 / 2021 Research Papers

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SVA EXERCISE Given: ($ ‘000) Baseline (last year) sales: $200,000 Sales growth: Operating… 1 answer below » SVA EXERCISE Given: ($ ‘000) Baseline (last year) sales: $200,000 Sales growth: Operating Profit Margin Fixed capital inv rate WC inv rate Cash tax rate COC Market securities Debt # shares outstanding Base year Fade rate Yr. 10 and after Note: Fade rate is the year-to-year reduction in the rate to some steady state rate 1.15 0.01 1.05 Year 1 = 1.14, year 2 = 1.13, etc. 0.2 0.01 0.1 0.2 (for every dollar of new sales, we need an additional investment in fixed plant and equipment of $.20) Note: on a per $ of sales basis 0.05 (for every dollar of new sales we need an additional investment View complete question » SVA EXERCISE Given: ($ ‘000) Baseline (last year) sales: $200,000 Sales growth: Operating Profit Margin Fixed capital inv rate WC inv rate Cash tax rate COC Market securities Debt # shares outstanding Base year Fade rate Yr. 10 and after Note: Fade rate is the year-to-year reduction in the rate to some steady state rate 1.15 0.01 1.05 Year 1 = 1.14, year 2 = 1.13, etc. 0.2 0.01 0.1 0.2 (for every dollar of new sales, we need an additional investment in fixed plant and equipment of $.20) Note: on a per $ of sales basis 0.05 (for every dollar of new sales we need an additional investment in inventories and receivables of $.05) Note: on a per $ of sales basis 0.35 0.12 $20,000 $50,000 5,000,000 Scenario 1 = $40/share Scenario 2 = $60/share Sales Operating Profit NOPAT New Investment Add’l WC Free cash flow PV to year 10 Pv after year 10 1. Value years 1-10 2. Value after year 10 Market securities Total Value Less debt 3. Value of equity Year1 Year 2 $228,000.00 $43,320.00 $28,158.00 $5,600.00 $1,400.00 $21,158.00 (all dollars in thousands) Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Year 9 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Year 10 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Residual $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Document Preview: 200000

1.1499999999999999
0.01
1.05

0.2
0.01
0.1

0.2

0.05

0.35

0.12

20000

50000

5000000

227999.99999999997
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43319.999999999993
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28157.999999999996
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5599.9999999999945
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0
0
0
0
0
0
0
0
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1399.9999999999986
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21158
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Sales growth:
Cash tax rate
COC
Market securities
Debt
Year1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
Sales
Add’l WC
PV to year 10
Residual
Pv after year 10
Total Value
SVA EXERCISE
Given:
Less debt
1. Value years 1-10
2. Value after year 10
3. Value of equity
(all dollars in thousands)
4. Value of equity/share
Base year
Fade rate
Free cash flow
NOPAT
New Investment
Note: on a per $ of sales basis
Note: Fade rate is the year-to-year reduction in the rate to some steady state rate
($ ‘000)
Yr. 10 and after
Operating Profit
Fixed capital inv rate
WC inv rate
# shares outstanding
Year 1 = 1.14, year 2 = 1.13, etc.
Baseline (last year) sales:
Operating Profit Margin
(for every dollar of new sales, we need an additional investment in fixed plant and equipment of $.20)
(for every dollar of new sales we need an additional investment in inventories and receivables of $.05)
Scenario 1 = $40/share
Scenario 2 = $60/share
1. What is the PV of operating cash flows over the competitive advantage period?
2. What is the residual value of the firm after the period of competitive advantage?
3. What is the value of the firm’s equity?
4. Compare the market value of equity ($40/share) with the estimate provided by SVA for scenario 1. What recommendations would you make to top management based on your analysis? Now compare the market value of equity ($60/share) with your SVA estimate. What would…



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