Prob 04-01: ACME General Corp.

Enter formulas in the cells highlighted yellow. Cells that have a little triangle in the upper
right hand corner have comments you can view. Let the cursor hover over the cell and the
comment will appear. These comments have hints or instructions. There may be slight (1
or 2 decimal) difference between this spreadsheet and what is in the text due to rounding
of the entries in the statements.
Note: all units in millions
Income Statements
Sales
Costs of Goods Sold
Sales, General and
Administrative
Depreciation
Operating Profit
Interest on original debt
Interest Expense on new debt
Interest expense
Earnings Before Taxes
Taxes
Net Income
Dividends
Additions to retained
earnings
Balance Sheets
Cash
Inventory
Accounts receivable
Total current assets
Gross PPE
Accumulated depreciation
Net PPE
Total assets
Accounts payable
Accrued expenses

Actual
2003
4,512.44
2,797.71

Projected
2004
4,873.44
3,021.53

Projected
2005
5,165.84
3,202.82

Projected
2006
5,475.80
3,394.99

902.49
225.62
586.62
80.00
25.73
105.73
480.89
192.36
288.53

974.69
243.67
633.55
80.00
34.35
114.35
519.20
207.68
311.52

1,033.17
258.29
671.56
80.00
42.84
122.84
548.72
219.49
329.23

1,095.16
273.80
711.85
80.00
50.18
130.18
581.67
232.67
349.00

104.89

135.10

191.43

202.90

183.64

176.41

137.80

146.11

Actual
2003
45.12
631.74
1,128.11
1,804.97
3,443.32
1,187.09
2,256.23
4,061.20

Projected
2004
48.73
682.28
1,218.36
1,949.37
3,867.49
1,430.77
2,436.72
4,386.09

Projected
2005
51.66
723.22
1,291.46
2,066.34
4,271.98
1,689.06
2,582.92
4,649.26

Projected
2006
54.76
766.61
1,368.95
2,190.32
4,700.75
1,962.85
2,737.90
4,928.22

451.24
225.62

487.34
243.67

516.58
258.29

547.58
273.79

Short-term debt
Total current liabilities
Long-term debt
Total liabilities
Common stock
Retained earnings
Total common equity
Total liabilities and equity

381.71
1,058.57
1,000.00
2,058.57
600.00
1,402.63
2,002.63
4,061.20

476.04
1,207.05
1,000.00
2,207.05
600.00
1,579.04
2,179.04
4,386.09

557.55
1,332.42
1,000.00
2,332.42
600.00
1,716.84
2,316.84
4,649.26

643.90
1,465.27
1,000.00
2,465.27
600.00
1,862.95
2,462.95
4,928.22

Projected
2004
633.55
253.42
380.13
1,949.37
731.01
1,218.36
3,655.08

Projected
2005
671.56
268.62
402.94
2,066.34
774.87
1,291.47
3,874.39

Projected
2006
711.85
284.74
427.11
2,190.32
821.37
1,368.95
4,106.85

270.74
109.39

219.31
183.63

232.46
194.65

3.23%
8.00%
8.00%
8.00%

5.02%
6.00%
6.00%
6.00%
67.86%
41.70%

5.02%
6.00%
6.00%
6.00%
6.00%
5.99%

a. Projecting the free cash flow.

Operating profit
Tax on operating profit
NOPAT
Operating current assets
Operating current liabilities
NOWC
Total net operating capital
Investment in total net operating
capital
FCF

Actual
2003
586.62
234.65
351.97
1,804.97
676.86
1,128.11
3,384.34

ROIC =(NOPAT/Beginning
capital)
Growth in Sales
Growth in NOPAT
Growth in total net op. cap.
Growth in FCF
Growth in dividends

b. Estimating the weighted average cost of capital (WACC).

Required return on bond
(yield)
Par Value
Number of bonds outstanding,
in thousands

$ 1,000.00
1,000

Number of payments remaining

Periodic coupon (semi-annual)
Bond price now
Aggregate market value of
bonds, $millions
Bond yield (semi-annual)
Bond yield (annual)
Required return on stock
Beta
Risk free rate
Market risk premium
Required return
Target weight debt
Target weight equity
Tax rate
WACC

52

$
$

40
900.15
900.15
4.500%
9.00%

1.1
5.40%
6%
12.00%
30%
70%
40%
10.020%

c. Estimating the per share value of ACME stock.

Actual
2003
FCF in 2007
Expected growth rate
Horizon Value in 2007
Free Cash Flow each year
Total of FCF and HV
PV = value of operations
Debt
Value of equity
Price per share if 100 million
shares

Projected
2004

Projected
2005

Projected
2006

109.39
109.39

183.63
183.63

194.65
194.65

$4,251.30
1,281.86
See the notes in the cells in this section and for the WACC
$2,969.44
calculation. Your answers will be different from the book b
$27 for the horizon value calculation and 22 cents for the p
$29.69 per share calculation. This is because we used the rounde
figure, 10.0%, for the WACC in the calculations for the tex
whereas unless you use the =round() function in the WAC
calculation, or just enter 10% in cell B92, you will get 10.02
If you use 10.0% for the WACC, your calculations will agre
much closer with those in the text.

triangle in the upper

r over the cell and the
here may be slight (1
text due to rounding

Projected
2007
5,804.34
3,598.69
1,160.87
290.22
754.56
80.00
57.95
137.95
616.61
246.65
369.96
215.05
154.91
Projected
2007
58.04
812.61
1,451.09
2,321.74
5,155.24
2,253.07
2,902.17
5,223.91
580.43
290.22

735.4
1,606.05
1,000.00
2,606.05
600.00
2,017.86
2,617.86
5,223.91

Projected
2007
754.56
301.82
452.74
2,321.74
870.65
1,451.09
4,353.26
246.41
206.33

5.02%
6.00%
6.00%
6.00%
6.00%
5.99%

Projected
2007
206.33
6.00%
5,440.43
206.33
5,646.75

this section and for the WACC

will be different from the book by
lculation and 22 cents for the price
is because we used the rounded
C in the calculations for the text,
e =round() function in the WACC
% in cell B92, you will get 10.02%.
ACC, your calculations will agree
e text.