MOHD NAZRI MOHAMAD JAIS (G0820083)

Exercise 10-11 The Henley Corporation

($ Million)
Sales growth rate
Costs/sales
Depreciation/net PPE
Cash/sales
Account receivable/sales
Inventories/sales
Net PPE/sales
Account payable/sales
Accruals/sales
Tax rate
WACC

a) Net sales

Actual
2003
72%
10%
1%
10%
20%
75%
2%
5%
40%
10.5%

Projected
2004
15%
72%
10%
1%
10%
20%
75%
2%
5%
40%
10.5%

2005
10%
72%
10%
1%
10%
20%
75%
2%
5%
40%
10.5%

2006
6%
72%
10%
1%
10%
20%
75%
2%
5%
40%
10.5%

2007
6%
72%
10%
1%
10%
20%
75%
2%
5%
40%
10.5%

Costs
Depreciation
Total operating costs
EBIT
Number of shares (million)

800.00
576.00
60.00
636.00
164.00
10.00

920.00
662.40
69.00
731.40
188.60

1,012.00
728.64
75.90
804.54
207.46

1,072.72
772.36
80.45
852.81
219.91

1,137.08
818.70
85.28
903.98
233.10

Assets
Cash
Marketable securities
Accounts receivable
Inventories
Operating current assets
Net plant and equipment

8.00
20.00
80.00
160.00
248.00
600.00

9.20

10.12

10.73

11.37

92.00
184.00
285.20
690.00

101.20
202.40
313.72
759.00

107.27
214.54
332.54
804.54

113.71
227.42
352.50
852.81

18.40

20.24

21.45

22.74

46.00
64.40

50.60
70.84

53.64
75.09

56.85
79.60

Liabilities and Equity

Accounts payable
Notes payable
Accruals
Operating current liabilities
Long-term bonds
Preferred stocks

16.00
40.00
40.00
56.00
300
15

MOHD NAZRI MOHAMAD JAIS (G0820083)

Exercise 10-11 The Henley Corporation
($ Million)
Calculation of FCF
Net operating working capital
Net Plant
Net operating capital
Investment in operating capital
NOPAT
b) Net Free cash flow
Growth in FCF
Value of Operations
Horizon value
Value of operations
d) MVA
e) Price per share of common equity
c)

Operating profitability
Capital requirements
Expected return on invested capital
Spread (EROIC - WACC)

Actual
2003
192.00
600.00
792.00
98.40

Projected
2004

2005

2006

2007

220.80
690.00
910.80
118.80
113.16
(5.64)

242.88
759.00
1,001.88
91.08
124.48
33.40
692.1%

257.45
804.54
1,061.99
60.11
131.94
71.83
115.1%

272.90
852.81
1,125.71
63.72
139.86
76.14
6.0%

1,793.56
1,869.70

1,329.56
537.56
99.46
12.3%
99.0%
12.4%
1.9%

12.3%
99.0%
12.4%
1.9%

12.3%
99.0%
12.4%
1.9%

12.3%
99.0%
12.4%
1.9%

From the above estimation and calculation, the company has positive MVA, i.e. creating value
for the company.

12.3%
99.0%
12.4%
1.9%

MOHD NAZRI MOHAMAD JAIS (G0820083)

Exercise 14-6: WACC and Optimal Capital Structure
bu

rf

rm

Tax

1.2

5%

6%

40%

Wd

We

D/S

rd

rs

WACC

0.00
0.20
0.40
0.60
0.80

1.00
0.80
0.60
0.40
0.20

0.00
0.25
0.67
1.50
4.00

7%
8%
10%
12%
15%

1.20
1.38
1.68
2.28
4.08

12.20%
13.28%
15.08%
18.68%
29.48%

12.20%
11.58%
11.45%
11.79%
13.10%

The firm's optimal capital structure is at WACC minimal value and in this case
WACC is 11.45% and therefore capital structure is 40% debt ratio.