Great Deal! Get Instant $10 FREE in Account on First Order + 10% Cashback on Every Order Order Now

MGMT XXXXXXXXXXFinal Part B - Spring '18 Final Exam Part B MGMT S2620 – Fall 2019 Hi Class, For Part B of your final exam, you are required to perform valuation for HES Company as given below. Submit...

1 answer below »
MGMT XXXXXXXXXXFinal Part B - Spring '18
Final Exam Part B
MGMT S2620 – Fall 2019

Hi Class,
For Part B of your final exam, you are required to perform valuation for HES Company as
given below. Submit your final project in a PDF file to Canvas by 11:59 pm December 10th,
2019 EST.
No late submission is accepted!
Plan and manage your time wisely!
Show detail work and discuss any assumptions you make.
The total points for this assignment is 200 points.
You may conduct your calculations in Excel. However, you should copy and paste it in a PDF
file for submission. Submit only one file.
Consider HES Company’s financial statements given below. This company belongs to the
etail sector and the cu
ent market price is $20 per shares with 50,000 common shares
outstanding. All net income is re-invested back into the company. Assume the Company’s
eta on YEAR 0 is estimated to be 1.75, due to lack of historical data. For the foreseeable
future risk-free rate is 2.5%, and market risk premium is 11%. Furthermore, assume the
company has a long-term growth rate in comprehensive income and FCF for 2.5% after the
fifth year. Net income and comprehensive income will be identical. Expect debt to equity
atio and WACC to be the same after year 5 and beyond.
Required:
1) Use at least six financial ratios to assess and discuss profitability (three or more
atios) and risk analysis (three or more ratios) for the company. (50 pts)
2) What is the company's value using the following methods?
a) Residual Income (30 pts)
) Free Cash Flow (FCFF and FCFE) Assume no change in cash liquidity (50 pts)
c) Valuation Ratios (Market Multiples), use at least three ratios. (30 pts)
d) Analyze and explain which one of the above valuation methods provides a better
and more realistic valuation based on the solutions and data in this case. (40 pts)
Good luck to you all!
Dr. Gandevani
HES Company Financial
Statements


Income Statements
Year 1 Year 2 Year 3 Year 4 Year 5
Revenues $2,173,600 $2,282,280 $2,396,394 $2,516,214 $2,667,024

Cost of Sales 1,395,708 1,490,980 1,578,910 1,685,954 1,814,508
Gross Profit $777,892 $791,300 $817,484 $830,259 $852,516
Accounting $6,240 $6,552 $6,880 $7,224 $7,585

Advertising & Promotion $47,759 $42,640 $40,363 $37,778 $34,853
Bank Charges $43,156 $45,314 $47,579 $49,958 $52,457

Compensation & Benefits $256,509 $264,204 $272,130 $280,294 $288,702
Consulting Fees $2,496 $0 $0 $0 $0

Insurance $1,040 $1,092 $1,147 $1,204 $1,265
Lease - Facilities $349,440 $349,440 $349,440 $349,440 $349,440

Legal &
XXXXXXXXXX

Professional
Licenses & Fees XXXXXXXXXX

Maintenance XXXXXXXXXX
Miscellaneous 1,800 1,836 1,873 1,910 1,948

Office supplies 2,700 2,754 2,809 2,865 2,923
Security XXXXXXXXXX

Telephone 1,800 1,836 1,873 1,910 1,948
Utilities 4,200 4,410 4,631 4,862 5,105

Website 1,800 1,800 1,800 1,800 1,800
Total Operating Exp. 721,260 724,242 732,932 741,700 750,525

EBIDTA $56,633 $67,058 $84,552 $88,560 $101,991
Depreciation 4,916 4,916 4,916 4,916 4,916

Operating Profit $51,717 $62,142 $79,636 $83,644 $97,075
Interest Expense XXXXXXXXXX XXXXXXXXXX
Earnings Before Taxes 40,677 51,654 69,700 74,260 88,243
Income Taxes 8,542 10,847 14,637 15,595 18,531
Net Income $32,135 $40,807 $55,063 $58,665 $69,712



Balance Sheets

Begin Year 1 Year 2 Year 3 Year 4 Year 5
Cash $33,150 $50,685 $75,391 $112,629 $151,485 $199,107
Inventory 77,000 191,916 213,416 237,641 264,950 278,197
Total Cu
ent Assets $110,150 $242,601 $288,807 $350,270 $416,435 $477,304

Fixed Assets 33,850 33,850 33,850 33,850 33,850 33,850
Less: Depreciation 0 4,916 4,916 4,916 4,916 24,579
Net Fixed Assets 33,850 28,934 28,934 28,934 28,934 9,271
Total Assets $144,000 $271,535 $317,741 $379,204 $445,369 $486,575


Accounts Payable 100,000 110,000 121,000 133,100 150,000
Long Term Debt 92,000 87,400 82,800 78,200 73,600 69,000
Total
92,000 187,400 192,800 199,200 206,700 219,000 Liabilities
Owner's Equity
Paid in Capital 52,000 52,000 52,000 52,000 52,000 52,000
Retained Earnings 0 32,135 72,941 128,004 186,669 215,575
Total
$144,000 $271,535 $317,741 $379,204 $445,369 $486,575
Liabilities &
Equity
Answered Same Day Nov 20, 2021

Solution

Kushal answered on Nov 29 2021
132 Votes
Sensitivity Analysis
    Terminal Growth Rate
    
    
    
    
    
    
    
    
    
    
    
    
    Cost of...
SOLUTION.PDF

Answer To This Question Is Available To Download

Related Questions & Answers

More Questions »

Submit New Assignment

Copy and Paste Your Assignment Here