answers for quantitative questions (exam 3) (1)

8/2/2019 Answers for Quantitative Questions (Exam 3) (1)

1/3

Answers to Quantitative QuestionsExam 3

2. Nemo Inc. manufactures life-vests for marine use. Based on the following information, what arethe companys free cash flows to the firm (FCFF) for the year ended October 31, 2009?

October 31 2009 2008

Cash $4,400 $3,560

Net operating working capital $1,400 $700

Net long-term operating assets $2,400 $2,000Net nonoperating obligations (NNO) $300 $200Net operating profit after tax (NOPAT) $400 $360

Discount factor 5.4% 5.8%

Rationale: FCFF = NOPAT- increase in net operating assets (NOA)NOA = Net operating working capital + Net long-term operating assets2008 NOA = $700 + $2,000 = $2,7002009 NOA = $1,400 + $2,400 = $3,800FCFF = $400($3,800$2,700) = -$700

3. Assume the following free cash flows for Caterpillar Inc. for 2009 and forecasted FCFF for 2010onward (in millions):

Current Forecast Horizon TerminalYear($millions) 2009 2010 2011 2012 2013

Free cash flows to the firm(FCFF) $2,569 $2,698 $2,897 $3,312 $3,645 $3,789

What is the value of the firm using the FCFF information above, a discount rate of 8%, and anexpected terminal growth rate of 3.5%?

Answer: $2,698/1.08 + $2,897/1.082 + $3,312/1.083 + $3,645/1.084 + (($3,789/(.08-.035))/1.084 =

$72,180 (rounded to the nearest dollar)

5. Following are financial statement numbers and select ratios for Darden Restaurants Inc. for theyear ended February 3, 2008. Use the information to determine the residual operating income(ROPI) in 2009.

2008 Sales $6,626,5902008 Net operating assets (NOA) $2,881,459Sales growth, 2009 through 2012 9.1%Net operating profit margin (NOPM) 6.8%Net operating asset turnover (NOAT) 2.37Terminal growth rate 4%

Discount rate 8%Answer:

Sales (2009) $ 7,229,610

NOPAT (2009) $ 491,613

RNOA 17.06%

ROPI $ 261,097


2/3


6. Following are the balance sheet and income statement (in thousands) for Golden Books.Golden Books

Balance Sheet at December 31

(in thousands) 2008 2007

Cash $ 1,023 $ 979

Accounts Receivable 1,473 1,596Inventories 4,568 3,857Total Current Assets 7,064 6,432

Plant Assets, Net 10,987 10,625

Total Assets $18,051 $17,057

Accounts Payable $ 991 $ 848Accrued Liabilities 875 745

Total Current Liabilities 1,866 1,593Long-term Debt 4,472 5,199Total Stockholder's Equity 11,713 10,265

Total Liabilities and Equity $18,051 $17,057

Golden BooksIncome Statement for the year ended December 31

(in thousands) 2008 2007

Revenues $12,082 $10,437Cost of Books Sold 5,938 5,014

Gross Profit 6,144 5,423Selling, General and Admin Expenses 3,969 3,507

Operating Profit 2,175 1,916

Interest Expense 250 225Pretax Income 1,925 1,691Income Tax Expense 578 507

Net Income $ 1,347 $ 1,184

a. Calculate net operating profit after tax (NOPAT) for 2008.b. Calculate net operating assets (NOA) for 2007 and 2008. Assume that the companys statutorytax rate is 30%.c. What is the free cash flows to the firm (FCFF) for 2008 for the Golden Books?d. What is the residual operating income (ROPI) for 2008 for the Golden Books? The companysweighted average cost of capital is 8.45%.

NOPAT 2008 1,522

NOA 2008 16,185

NOA 2007 15,464

FCFF 801

RNOA 9.84%

ROPI $ 215.29


3/3


7. Apex Foods is a manufacturer and distributor of numerous food items. The company has a bookvalue of $20.17 per share. Apex Foods is part of the food processing industry which has anindustry PB ratio of 2.17. Using industry information, estimate the intrinsic value of Apex Foodsequity per share?

Answer: 43.77

8. Cary Computers is a manufacturer of computer parts. The company recently reported earnings of$679,789. In addition, Cary Computers has 212,500 shares issued and outstanding. Thecompany has a PE ratio of 21.8. Cary Computers is part of the computer parts industry which hasan industry P/E ratio of 24.3. Using industry information, estimate the intrinsic value of CaryComputers equity per share.

Answer: $77.74

10.Swift Creek Learning is a retailer focused on education supplies. The company has a book valueof $19.25 per share. Swift Creek Learning has a PB ratio of 6.23 and the education suppliesindustry PB ratio is 5.31. Assuming that comparable industry companies are priced correctly theintrinsic value of Swift Creek Learnings equity per share is

a. overvalued $17.71 per shareb. undervalued $17.71 per sharec. priced correctlyd. overvalued by $19.25 per share

answers for quantitative questions (exam 3) (1)

Documents