Constant dividend growth--invent

a + b ln(sales). See Ch 8, "When

Projections Aren't a Percentage o

Van Leer Products, Inc.

Actual

Income Statement

Net Sales
Cost Of Goods Sold
Selling, general & administrative
Depreciation
Operating profit
Interest income
Interest expense
Earnings before taxes
Taxes
Net income
Dividends
Additions to RE

2003
1,000.0
640.0
215.0
45.0
100.0
10.0
90.0
36.0
54.0
16.0
38.0

Accounts payable
Accrued expenses
Short-term debt
Total current liabilities
Long-term debt
Total liabilities
Common stock
Retained earnings
Total common equity
Total liabilities and equity

75.0
10.0
25.0
110.0
99.0
209.0
125.0
216.0
341.0
550.0

Projected

2004
1,110.0
693.8
249.8
56.6
109.9
0.8
11.2
99.5
39.5
60.0
17.6
42.4
10.0%
Actual
Projected
Balance sheet
2003
2004
50.0
33.3
Cash
25.0
0.0
Short term investments
100.0
105.9
Inventory
75.0
84.4
Accounts receivable
250.0
223.5
Total current assets
300.0
377.4
Net PP&E
550.0
600.9
Total assets

making the sheets balance

specified assets
specified liabilities
asset-liability gap
discrepancy
valuation
free cash flow
WACC

11.50%

Projected
Projected
Projected
2005
2006
2007
1,198.8
1,282.7
1,372.5
749.3
801.7
864.7
269.7
288.6
308.8
56.6
59.3
63.4
123.2
133.1
135.6
0.5
1.5
10.5
8.3
8.8
112.7
125.3
128.3
44.7
49.7
50.9
68.0
75.5
77.4
19.4
21.3
23.4
48.6
54.2
53.9
10.0%
10.0%
10.0%
Projected
Projected
Projected
2005
2006
2007
36.0
38.5
27.5
15.6
49.3
85.7
113.6
120.3
127.1
91.1
97.5
104.3
256.2
305.6
344.5
377.6
395.1
422.7
633.8
700.6
767.3

89.9
11.1
26.4
127.4
90.1
217.6
125.0
258.4
383.4
600.9

97.1
12.0
0.0
109.1
92.7
201.8
125.0
307.0
432.0
633.8

103.9
12.8
0.0
116.7
97.7
214.4
125.0
361.2
486.2
700.6

111.2
13.7
0.0
124.9
102.2
227.1
125.0
415.1
540.1
767.3

600.94

618.25

651.36

681.56

574.54

633.81

700.65

767.28

26.40

-15.55

-49.29

-85.72

0.00

0.00

0.00

0.00

6.33385

65.04131

54.82180

59.73990

Horizon value
Value of operations
Value of investments
Total value of firm
Value of all debt, preferred stock, and
other nonoperating liabilities
Value of equity
Number of shares (millions)
Estimated price per share, end of
2003 fiscal year
$

684.67

757.07

779.09

813.87

847.72

25.0
709.7

757.1

15.6
794.6

49.3
863.2

85.7
933.4

124.0
585.67
10

116.5
640.5
10

92.7
701.9
10

97.7
765.5
10

102.2
831.2
10

58.57

64.05

70.19

76.55

83.12

dividend growth--inventory is
ales). See Ch 8, "When
ns Aren't a Percentage of
Projected
Projected
2008
2009
1,454.9
1,542.1
931.1
987.0
327.3
347.0
67.2
71.2
129.2
136.9
2.6
3.3
9.2
9.7
122.6
130.5
48.7
51.8
73.9
78.7
25.3
26.8
48.6
51.9
8.0%
6.0%
Projected
Projected
2008
2009
29.1
30.8
108.6
133.5
132.9
138.7
110.6
117.2
381.1
420.2
448.1
475.0
829.2
895.2
117.8
14.5
0.0
132.4
108.1
240.5
125.0
463.8
588.8
829.2

124.9
15.4
0.0
140.3
114.3
254.6
125.0
515.6
640.6
895.2

720.64

761.72

829.24

895.21

-108.60

-133.48

0.00

0.00

46.31178

49.43938

952.83
952.83

898.90
108.6
1,007.5

133.5
1,086.3

108.1
899.4
10
$

89.94

114.3
972.1
10
$

97.21

Constant dividend growth--inventory is a

See Ch 8, "When Projections Aren't a Per
Sales."

Van Leer Products, Inc.

Operating Results
Actual
Income Statement
Net Sales
Cost Of Goods Sold
Selling, general & administrative
Depreciation
Operating profit
Taxes
NOPAT

2003
1,000.0
640.0
215.0
45.0
100.0
0.0
100.0
Actual

Projected
Projected
Projected
2004
2005
2006
1,110.0
1,198.8
1,282.7
693.8
749.3
801.7
249.8
269.7
288.6
56.6
56.6
59.3
109.9
123.2
133.1
0.0
0.0
0.0
109.9
123.2
133.1
Projected
Projected
Projected
2004
2005
2006
33.3
36.0
38.5
105.9
113.6
120.3
84.4
91.1
97.5
223.5
240.6
256.3

Balance sheet
Cash
Inventory
Accounts receivable
Total operating current
assets
Net PP&E
Total assets

2003
50.0
100.0
75.0
225.0
300.0
525.0

377.4
600.9

377.6
618.3

395.1
651.4

Accounts payable
Accrued expenses
Total operating current
liabilities

75.0
10.0
85.0

89.9
11.1
101.0

97.1
12.0
109.1

103.9
12.8
116.7

Actual
Operating Income
Tax on Operating Income
NOPAT
Net Operating WC
Net Operating Long Term Assets
Total Net Operating Assets
Investment in net operating assets
Free Cash Flow
growth in FCF
ROIC

2003
100.0
40.0
60.0
140.0
300.0
440.0
38.0
22.0
102.3%
14.9%

Projected
Projected
Projected
2004
2005
2006
109.9
123.2
133.1
43.6
48.9
52.9
66.3
74.3
80.3
122.5
131.5
139.6
377.4
377.6
395.1
499.9
509.2
534.6
59.9
9.2
25.5
6.3
65.0
54.8
-71.2%
926.9%
-15.7%
15.1%
14.9%
15.8%

vidend growth--inventory is a + b ln(sales).

When Projections Aren't a Percentage of

Projected
Projected
Projected
2007
2008
2009
1,372.5
1,454.9
1,542.1
864.7
931.1
987.0
308.8
327.3
347.0
63.4
67.2
71.2
135.6
129.2
136.9
0.0
0.0
0.0
135.6
129.2
136.9
Projected
Projected
Projected
2007
2008
2009
27.5
29.1
30.8
127.1
132.9
138.7
104.3
110.6
117.2
258.8
272.5
286.7
422.7
681.6

448.1
720.6

475.0
761.7

111.2
13.7
124.9

117.8
14.5
132.4

124.9
15.4
140.3

Projected
Projected
Projected
2007
2008
2009
135.6
129.2
136.9
53.8
51.3
54.4
81.8
77.9
82.6
133.9
140.2
146.4
422.7
448.1
475.0
556.7
588.2
621.4
22.0
31.6
33.1
59.7
46.3
49.4
9.0%
-22.5%
6.8%
15.3%
14.0%
14.0%

Constant dividend growthln(sales). See Ch 8, "When

Percentage of Sales."

Van Leer Products, Inc.

Projected Parameters
Projected
3-year Average
9.16%
64.04%
22.34%
14.97%

Sales growth rate

COGS / Sales
SGA / Sales
Depreciation / Net PPE
Ratios to calculate operating capital
Cash / Sales
Inventory/ Sales
Accts. Rec. / Sales
Net PPE / Sales
Accts. Pay./ Sales
Accruals / Sales
Ratios to calculate operating taxes
Tax Rate (Taxes/EBT)
Dividend and debt ratios
Dividend policy: growth rate
Dividend policy: payout rate
Long-term Debt / operating assets
Interest Rates
Interest rate on short-term invest.
Interest rate on debt

2004
11.0%
62.5%
22.5%
15.0%

2005
8.0%
62.5%
22.5%
15.0%

2006
7.0%
62.5%
22.5%
15.0%

4.99%
9.31%
7.55%
30.80%
8.15%
1.00%

3.0%

3.0%

3.0%

7.6%
34.0%
8.1%
1.0%

7.6%
31.5%
8.1%
1.0%

7.6%
30.8%
8.1%
1.0%

39.69%

39.700%

39.7%

39.7%

18.56%
28.80%
16.03%

10.00%
29.00%
15.00%

10.00%
29.00%
15.000%

10.00%
29.00%
15.000%

5.00%
8.75%

3.00%
9.00%

3.00%
9.00%

3.00%
9.00%

Nonlinear estimation of inventory according to a + b ln(sales)

Actual historical data:
year:
1996
1997
Net Sales
590
640
ln(sales)
6.380122537 6.46146818
Inventory
40
52
Estimating the parameters:

1998
1999
690
770
6.5366916 6.64639051
63
70

fitted: a + b ln(sales)
a
b
-593.886725
99.793931
year:

fitted inventory, using fitted parameters

projected: a + b ln(sales)
proj. a
-593.88673

1996

1997

1998

1999

42.81

50.93

58.44

69.38

Projections, using log function:

year:
Net Sales
ln(sales)
projected inventory, using projected parameters

2004
2005
2006
1110
1198.8
1282.716
7.01211529 7.08907634 7.15673498
105.88
113.56
120.31

Constant dividend growth--inventory is a + b

n(sales). See Ch 8, "When Projections Aren't a
Percentage of Sales."
2007
7.0%
63.0%
22.5%
15.0%

2008
6.0%
64.0%
22.5%
15.0%

2.0%

2.0%

2.0%

2.0%

7.6%
30.8%
8.1%
1.0%

7.6%
30.8%
8.1%
1.0%

7.6%
30.8%
8.1%
1.0%

7.6%
30.8%
8.1%
1.0%

39.7%

39.7%

39.7%

39.7%

10.00%
29.00%
15.000%

8.00%
29.00%
15.000%

6.00%
29.00%
15.0%

6.00%
160
29.00%
15.0%
140

3.00%
9.00%

3.00%
9.00%

Inventory Projections Using Log Function

Inventory

120

3.00%

Inventory

3.00%
9.00%

2009 thereafter
6.0%
6.0%
64.0%
64.0%
22.5%
22.5%
15.0%
15.0%

100
9.00%

fitted inventory, using

fitted parameters

80
60

projected inventory,
using projected
parameters

40

2000
2001
2002
2003
20
800
840
944
1000
6.68461173 6.73340189 6.85012617 6.90775528
0
0
73
75
85
100

500

1000
Sales

projected: a + b ln(sales)
proj. b
99.793931
2000

70

64

90

73.20

78.07

89.71

95.47

2007
2008
2009
1372.50612 1454.85649 1542.14788
7.22439363 7.28266254 7.34093145
127.06
132.88
138.69

1500

2000

Inventory

fitted inventory, using

fitted parameters
projected inventory,
using projected
parameters

Van Leer Products, Inc.

Cost of Capital
Proportions of Long-term Debt and Equity Financing
current market price of stock=
shares of common stock outstanding
(millions)=
current market value of equity=
book value of long-term debt=
current ratio of book value of debt to sum
of book value of debt and market value of
equity=
target ratio of book value of debt to sum
of book value of debt and market value of
equity=
target ratio of market value of equity to
sum of book value of debt and market
value of equity=

$40.12 per share

10 given, in millions
$401.20 price per share X shares outstanding
99 from Actual financial statements tab

19.8% calculated from above info

19.8% Judgment, based on historical ratios in Hist Analys sheet and market c

80.2% = 1 - debt ratio

Estimate Cost of Equity

Beta=
Risk-free rate=
Market risk premium =
Cost of equity=

1.40
6.0%
5.0%
13.0%

given
given
given
calculated from above info

Cost of Debt
interest rate on debt=
tax rate=
After-tax cost of long-term debt=

9.0% from inputs tab

39.7% from inputs tab
5.4% calculated from above info

Calculation of WACC
wacc=

11.50% calculated

ist Analys sheet and market conditions.

Van Leer Products, Inc.

Historical Free Cash Flow Calculations
Do this section third!

Actual

Operating Income
Tax on Operating Income
(40%)
NOPAT
Net Operating WC
Net Operating Long Term Assets
Total Net Operating Assets
Investment in net operating assets
Free Cash Flow
growth in FCF
ROIC

Actual

Actual

2001
79.0
31.6

2002
72.0
28.1

2003
100.0
40.0

47.4
94.0
275.0
369.0

43.9
122.0
280.0
402.0
33.0
10.9

60.0
140.0
300.0
440.0
38.0
22.0
102.3%
14.9%

Historical Ratios
Actual
Sales growth rate
COGS / Sales
SGA / Sales
Depreciation / Net PPE
Ratios to calculate operating
capital
Cash / Sales
Inventory/ Sales
Accts. Rec. / Sales
Net PPE / Sales
Accts. Pay./ Sales
Accruals / Sales
Ratios to calculate operating
taxes
Tax Rate (Taxes/EBT)
Dividend and debt ratios
Dividend policy: growth rate
Dividend policy: payout rate
Long-term Debt / operating assets
Interest Rates
Interest rate on short-term invest.
Interest rate on debt

Actual

Actual

2001
na
61.90%
23.81%
14.91%

2002
12.38%
66.21%
21.72%
15.00%

2003 3-year Average

5.93%
9.16%
64.00%
64.04%
21.50%
22.34%
15.00%
14.97%

5.00%
8.93%
7.74%
32.74%
9.52%
0.95%

4.98%
9.00%
7.42%
29.66%
7.42%
1.06%

5.00%
10.00%
7.50%
30.00%
7.50%
1.00%

4.99%
9.31%
7.55%
30.80%
8.15%
1.00%

40.00%

39.06%

40.00%

39.69%

na
28.57%
11.82%

-8.33%
28.21%
17.43%

45.45%
29.63%
18.86%

18.56%
28.80%
16.03%

na
na

10.00%
8.70%

0.00%
8.80%

5.00%
8.75%

Van Leer Products, Inc.

Annual Financial Information
Actual
Income Statement
Net Sales
Cost Of Goods Sold
Selling, general & administrative
Depreciation
Operating profit
Interest income
Interest expense
Earnings before taxes
Taxes
Net income
Dividends
Additions to RE

Actual
2001
840.0
520.0
200.0
41.0
79.0
0.0
9.0
70.0
28.0
42.0
12.0
30.0

Actual

Actual
2002
944.0
625.0
205.0
42.0
72.0
1.0
9.0
64.0
25.0
39.0
11.0
28.0

Actual

2003
1,000.0
640.0
215.0
45.0
100.0
0.0
10.0
90.0
36.0
54.0
16.0
38.0
Actual

Balance sheet
Cash
Short term investments
Inventory
Accounts receivable
Total current assets
Net PP&E
Total assets

2001
42.0
10.0
75.0
65.0
192.0
275.0
467.0

2002
47.0
15.0
85.0
70.0
217.0
280.0
497.0

2003
50.0
25.0
100.0
75.0
250.0
300.0
550.0

Accounts payable
Accrued expenses
Short-term debt

80.0
8.0
50.0
138.0
54.0
192.0
125.0
150.0
275.0
467.0

70.0
10.0
30.0
110.0
84.0
194.0
125.0
178.0
303.0
497.0

75.0
10.0
25.0
110.0
99.0
209.0
125.0
216.0
341.0
550.0

Total current liabilities

Long-term debt
Total liabilities
Common stock
Retained earnings
Total common equity
Total liabilities and equity