The document provides financial statements and projections for The Henley Corporation for 2010-2013. It asks to forecast financials, calculate metrics like free cash flow, operating profitability, capital requirements, return on invested capital, and value of operations to determine if the company will have positive market value added. Calculations are provided to forecast income statements and balance sheets, calculate free cash flow for each year, operating metrics, value of operations using a horizon value approach, and ultimately the market value added and price per share.
The document provides financial statements and projections for The Henley Corporation for 2010-2013. It asks to forecast financials, calculate metrics like free cash flow, operating profitability, capital requirements, return on invested capital, and value of operations to determine if the company will have positive market value added. Calculations are provided to forecast income statements and balance sheets, calculate free cash flow for each year, operating metrics, value of operations using a horizon value approach, and ultimately the market value added and price per share.
The document provides financial statements and projections for The Henley Corporation for 2010-2013. It asks to forecast financials, calculate metrics like free cash flow, operating profitability, capital requirements, return on invested capital, and value of operations to determine if the company will have positive market value added. Calculations are provided to forecast income statements and balance sheets, calculate free cash flow for each year, operating metrics, value of operations using a horizon value approach, and ultimately the market value added and price per share.
The document provides financial statements and projections for The Henley Corporation for 2010-2013. It asks to forecast financials, calculate metrics like free cash flow, operating profitability, capital requirements, return on invested capital, and value of operations to determine if the company will have positive market value added. Calculations are provided to forecast income statements and balance sheets, calculate free cash flow for each year, operating metrics, value of operations using a horizon value approach, and ultimately the market value added and price per share.
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Chapter 13.
Ch 13-11 Build a Model
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 Cash $ 8.0 Accounts Payable Marketable Securities 20.0 Notes payable Accounts receivable 80.0 Accruals Inventories 160.0 Total current liabilities Total current assets $ 268.0 Long-term bonds Net plant and equipment 600.0 Preferred stock Common Stock Total Assets $ 868.0 (Par plus PIC) Retained earnings Common equity Total liabilities and equity
Projected ratios and selected information for the current and projected years are shown below.
a. Forecast the parts of the income statement and balance sheets necessary to calculate free cash flow.
Partial Income Statement for the Year Ending December 31 (Millions of Dollars) Actual Projected Projected Projected 2010 2011 2012 2013 Net Sales $ 800.0 Costs (except depreciation) $ 576.0 Depreciation $ 60.0 Total operating costs $ 636.0 Earning before int. & tax $ 164.0
Partial Balance Sheets for December 31 (Millions of Dollars)
Actual Projected Projected Projected Operating Assets 2010 2011 2012 2013 Cash $ 8.0 Accounts receivable $ 80.0 Inventories $ 160.0 Net plant and equipment $ 600.0
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. Actual Projected Projected Projected Calculation of FCF 2010 2011 2012 2013 Operating current assets Operating current liabilities Net operating working capital Net PPE Net operating capital NOPAT Investment in operating capital na Free cash flow na Growth in FCF na na Growth in sales 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)?
Actual Projected Projected Projected
2010 2011 2012 2013 Operating profitability (OP=NOPAT/Sales) Capital requirement (CR=Operating capital/Sales) Return on invested capital (ROIC=NOPAT/Operating capital at start of year) na Weighted average cost of capital (WACC) na Spread between ROIC and WACC na
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.)
Actual Projected Projected Projected
2010 2011 2012 2013 Free cash flow Long-term constant growth in FCF Weighted average cost of capital (WACC) 10.5% 10.5% 10.5% 10.5% Horizon value FCF in Years 1-3 and FCF4 + horizon value in Year 4 Value of operations (PV of FCF + HV)
Operating capital
Market value added (MVA=Market value of company
- book value of company = Value of operations - Operating capital)
e. Calculate the price per share of common equity as of 12/31/2010.
Actual 2010 Value of Operations Plus Value of Mkt. Sec. Total Value of Company Less Value of Debt Less Value of Pref. Value of Common Equity Divided by number of shares Price per share 4/16/2010
