Attached is a spreadsheet showing the most recent financialstatements for Wall Enterprises. Please do your calculations on thespreadsheet. Using the percent of sales method forecast thefinancial statements for the next three years. Sales areanticipated to grow by 10%, 8%, and 5% thereafter. The WACC is 9%.Balance the balance sheets by using the Line of Credit or adding aMarketable Securities line if needed. The interest rate on all debtis 8% and is based on the debt outstanding at the end of the prioryear. Dividends are forecast to grow by 10% each year. Noadditional long-term debt or commons stock will be sold. Make anote of anything you assumed in your forecast. Calculate the FCFand the terminal value to determine the value of the company. Giventhe 10 million shares outstanding what is the implied stock price?If an investor is willing to pay $250 million for 25% of thecompany, assuming a terminal value of 8X EBIT in 2019, (ignore theDCF calculations you just did) what return on investment does thatprovide? Is that likely to be an acceptable investment to theinvestor?
| Wall Enterprises | | | |
| | | | |
| Balance Sheet 12/31/16 | (Inmillions) | | |
| | 2016 | | |
| Cash | | $Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 20 | | |
| Accountsreceivable | 280 | | |
| Inventory | 400 | | |
| TotalCurrent Assets | $Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 700 | | |
| Net fixedAssets | 500 | | |
| Total Assets | $Â Â Â Â Â Â Â Â Â Â Â Â Â Â 1,200 | | |
| | | | |
| Accountspayable | $Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 80 | | |
| Line ofcredit | 0 | | |
| TotalCurrent Liabilites | $Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 80 | | |
| Long-termDebt | 500 | | |
| TotalLiabilites | $Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 580 | | |
| CommonStock | 420 | | |
| RetainedEarnings | Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 200 | | |
| TotalStockholders Equity | 620 | | |
| Total Liabilites and Equity | $Â Â Â Â Â Â Â Â Â Â Â Â Â Â 1,200 | | |
| | | | |
| Income Statement Year Ending 2016 | (Inmillions) |
| | | | |
| Sales | | $Â Â Â Â Â Â Â Â Â Â Â Â Â Â 2,000 | | |
| OperatingCosts | Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 1,800 | | |
| Depreciation | 50 | | |
| EBIT | | $Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 150 | | |
| Interest | | 40 | | |
| EBT | | $Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 110 | | |
| Taxes(40%) | Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 44 | | |
| Net Income | $Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 66 | | |
| | | | |
| Dividends | 20 | | |
| Addition toRE | $Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 46 | | |
| CommonShares | 10 | | |
