FINANCIAL STATEMENT MODEL

SUFYAN SARWAR 02-112202-006

Sales growth 14% M.UMER KALEEM 02-112202-024
Current assets/Sales 15% WAQAS JABBAR 02-112192-067
Current liabilities/Sales 8% SAAD AHMED SIDD02-112202-015
Net fixed assets/Sales 45%
Salary exp/Sales 10%
Costs of goods sold/Sales 60%
Depreciation rate 10%
Interest rate on debt 9.00%
Interest paid on cash and marketable securities 7.00%
Tax rate 35%
Dividend payout ratio 45%

Part (a)
Year 2020 2021 2022 2023 2024 2025
Income statement
Sales 130000 148200 168948 192600.7 219564.8 250303.9
Costs of goods sold (1,800) -88920 -101369 -115560 -131739 -150182
Interest payments on debt (4,400) -1530 -1530 -1530 -1530 -1530
Interest earned on cash and marketable securities 1,050 534 110 307 524 762
Salary Expense (31,000) -14820 -16895 -19260 -21956 -25030
Depreciation (15,000) -9036 -11620 -13895 -16557 -19666
Profit before tax 78,850 34427 37644 42662 48307 54657
Taxes (23,000) -12050 -13176 -14932 -16907 -19130
Profit after tax 55,850 22378 24469 27730 31399 35527
Dividends (43,140) -10070 -11011 -12479 -14130 -15987
Retained earnings 12,710 12308 13458 15252 17270 19540

Part (b)
Balance sheet
Cash and marketable securities 15000 244 2913 5865 9113 12669
Current assets 16000 22230 25342 28890 32935 37546
Fixed assets
At cost 75000 105726 126683 151222 179913 213412
Depreciation (30,000) -39036 -50657 -64552 -81109 -100775
Net fixed assets 45000 66690 76027 86670 98804 112637
Total assets 76000 89164 104281 121425 140852 162851

Current liabilities 11000 11856 13516 15408 17565 20024

Debt 17000 17000 17000 17000 17000 17000
Stock 27000 27000 27000 27000 27000 27000
Accumulated retained earnings 21000 33308 46766 62017 79287 98827
Total liabilities and equity 76000 89164 104281 121425 140852 162851

Free cash flow calculation

Profit after tax 22378 24469 27730 31399 35527
Add back depreciation 9036 11620 13895 16557 19666
Subtract increase in current assets -6230 -3112 -3548 -4045 -4611
Add back increase in current liabilities 856 1660 1892 2157 2459
Subtract increase in fixed assets at cost -30726 -20957 -24539 -28691 -33499
Add back after-tax interest on debt 995 995 995 995 995
Subtract after-tax interest on cash and mkt. securities -346.7948408 -71.8073464 -199.6899 -340.7555 -495.5478
Free cash flow -4039 14603 16226 18032 20042

Valuing the firm

Weighted average cost of capital 16%
Long-term free cash flow growth rate 6%

Year
FCF -4039 14603 16226 18032 20,042
Terminal value 212444
Total -4039 14603 16226 18032 232486

Enterprise value,Net present value of row total FCF $138,414.11

Add in initial (year 0) cash and mkt. securities 15000
Asset value in year 0 $153,414.11
Subtract out value of firm's debt today -17000
Equity value $136,414.11

The effect of sales growth on equity valuation Growth $136,414.1

0%
2%
4%
6%
8%
10%
12%
14%
16%

The impact of sales growth and WACC on equity valuation 136,414 10% 12% 14% 16% 18% 20% 22% 24% 26%
0%
2%
4%
6%
8%
10%
12%
14%
16%

REQUIRED:
a PREPARE PROJECTED FINANCIAL STATEMENTS FOR 5 YEARS (2021-2025)
b CALCULATE PROJECTED FREE CASH FLOWS FOR 5 YEARS (2021-2025)
c CALCULATE TERMINAL VALUE USING FREE CASH FLOWS
d CALCULATE ENTERPRISE VALUE AND EQUITY VALUE
e PERFORM SENSITIVITY ANALYSIS TO FIND THE IMPACT OF SALES GROWTH ON EQUITY VALUATION
f PERFORM SENSITIVITY ANALYSIS TO FIND THE IMPACT OF SALES GROWTH AND WACC ON EQUITY VALUATION