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Question 1 i) Calculate the corporate value and equity value for JD by using shareholder...

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Finance

Question 1

i) Calculate the corporate value and equity value for JD by using shareholder value analysis. Data shown below

Sales Growth

15%

per annum

Operating Profit Margin

13%

of sales

Change in CAPEX

12%

of the change in sales

Change in Net Working Capital

10%

of the change in sales

Planning Horizon

5

years

Sales in 2020 were 5,000,000 and face a tax rate of 25%. Risk free rate =3%, market risk premium = 6%, equity beta = 1.5, debt rate = 7%, target capital gearing level of 30% debt in its capital structure, marketable securities = 500,000, debt = 1,750,000.

Assumed that growth will stop after year 5 and there will be no more Capex nor net working capital requirements. Sales growth will be zero and the profit margin and tax rate will remain the same. Assume that the cash flows will continue forever.

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