Reference no: EM13714946
It is the end of 2014 and you are working in the finance department of BioTrend Industries. The CFO of the company knows that you just earned a BBA from Georgia, which is known for its rigorous education in Finance; hence, he asks you to determine the intrinsic value of the company alongside an assessment if the stock is currently undervalued or overvalued. Assume that the company is still in the non-growth stage (2014 and 2015), but that cash flows are expected to grow at a constant rate of 7% after 2015.
You start immediately with the collection of all relevant data, which are listed below:
Financial statements for 2014 (see spreadsheet)
The company's historical sales:
Year
Sales
2009
85,215
2010
133,901
2011
200,252
2012
288,065
2013
380,692
2014
445,150
2015
Assume interest rate on short-term securities: 1%
Assume interest rate for short-term debt: 3%
Assume interest rate on long-term debt: 5%
No interest is earned on cash.
Tax rate: 30%
Dividends growth rate: 15%
The industry average quick ratio: 2.0
The industry average debt ratio: 35% debt
Target Capital structure: 40% debt and 60% common equity
Bond Information:
If the company issues new bonds it would do so by issuing bonds with 20 years to maturity. The company has right now semiannual coupon bonds with a 6% coupon payment outstanding. The bonds were issued 10 years ago with 30 years to maturity and sell currently for 1048. The flotation cost is assumed to be 3% of par value (remember par value is always $1,000).
Stock Information:
The risk free rate (Rf) is right now 3% and the return on the market 12%. The company's beta is 1.1. The company has 5 million shares outstanding (5,000 in thousands). The current market value of the stock is $60.
Dr. Axel Grossmann FINC 3132
Use the provided spreadsheet to calculate the following (note, numbers are in thousands):
A) The forecasted sales for 2015 (based on a regression equation)
B) The pro-format statements for 2015
- The company needs to increase fixed assets to support sales
- (Use the beginning of year debt balances to calculate net interest expense)
C) The FCF for 2015 and for 2016
D) The WACC
E) Intrinsic Value per share end of 2014
F) Market value added (MVA)
a. Based on the actual market price
b. Based on the intrinsic value
|
The behaviors of asian/pacific american people
: Describe the typology for understanding motives for some of the behaviors of Asian/Pacific American people and their response in law enforcement situations. How might you apply this typology to better understand an Asian/Pacific American refug..
|
|
What are the verbal and nonverbal communication styles
: What are the verbal and nonverbal communication styles that can help police officers in their approach to Asian/Pacific American citizens? Does understanding the cultural components of these styles and behaviors help you to become more sensitiv..
|
|
Longer we have to wait for a future amount to be received
: Question 1.1. The longer we have to wait for a future amount to be received: the lower its present value will be. the higher its present value will be. Time does not affect present value, so it doesn't matter how long we have to wait. Beyond 10 year..
|
|
The wires company manufactures wire
: The Wires Company manufactures wire, for which it must buy copper. Two pounds of copper will produce one unit of wire, which sells for the price of the two pounds of copper plus $8. The fixed cost of the unit of wire is $4 and the variable cos..
|
|
The finance department of biotrend industries
: It is the end of 2014 and you are working in the finance department of BioTrend Industries. The CFO of the company knows that you just earned a BBA from Georgia, which is known for its rigorous education in Finance; hence, he asks you to deter..
|
|
The bonds make annual payments
: 1.Your firm issued 15- year bonds one year ago at a coupon rate of 7%. The bonds make annual payments. If the YTM is 7.5%, what is the current bond price?2. A firm has bonds on the markets with 9 years to maturity YTM of 7.1% and a current pri..
|
|
What was the company net income
: Last year Rattner Robotics had $5 million of operating income. Its depreciation expense was $1 million, its interest expense was $1 million, and its corporate tax rate was 40%. At year-end, it had $14 million in current asset, $3 million in acc..
|
|
Related to a case known as zeta mining
: My question is related to a case known as Zeta Mining: Walking the dragline, but I think it would be too time consuming to go through the details. What I'm looking for is more just to get my thinking straight in principle with regards to concep..
|
|
Bond interest payments before and after taxes
: Bond interest payments before and after taxes Charter Corp. has issued 2 ,500 debentures with a total principal value of $2,500,000. The bonds have a coupon interest rate of 7%. a. What dollar amount of interest per bond can an investor expect to..
|