You are the management accountant of Cheesecake and Pearl Company.

You were tasked to make an

internal projection for the valuation exercise of the company.

2017 2018 2019 2020

Volume 1,000,000 1,100,000 1,210,000 605,000
Revenues 5,000,000 5,500,000 6,050,000 3,025,000
Cost of goods sold:
 Variable 1,500,000 1,650,00 1,815,000 907,500
0
 Fixed 1,500,000 1,500,00 1,500,000 1,500,000
0
Gross profit 2,000,000 2,350,000 2,735,000 617,500
Operating expenses:
 Variable 500,000 550,000 605,000 302,500
 Fixed 400,000 400,000 400,000 400,000
Operating income 1,100,000 1,400,000 1,730,000 (85,000)
Management directed that the future trajectory of the business will be based on its historical revenue
performance with the exclusion of 2020 as it is an unusual year because of pandemic. Management
assumes that it can achieve the same level of sales growth pre-pandemic from 2021 onwards with 2020
as its base year.

Variable and fixed COGS and operating expenses will exhibit the same behavior as historical results. 60%
of fixed COGS are related to depreciation while 30% of fixed operating expenses are related to
deprecation. Capital investment is estimated to be infused yearly at P500,000. Net cash flow is
estimated to grow by 5% after the initial 5-year forecast period. Cost of capital for Cheesecake and Pearl
Company is at 8%. Corporate income tax rate is imposed at 25%. Outstanding loans at end of 2020 is at
P5,000,000.

Required:

1. What is the compounded annual growth rate for revenues for 2017 to 2020?
2. What is the compounded annual growth rate for revenues for 2017 to 2019?
3. What is the growth rate that will be used in the forecaster preparation?
4. What is the projected net income for 2021 to 2025?
5. What is the net cash flows from 2021 to 2025?
6. what is the enterprise value of Cheesecake and Pearl Company?
7. What is the equity value of Cheesecake and Pearl Company?