Question

1. Question (70%) The Bergman Corporation sold its shares to the general public in 2018. The firm's estimated free cash flow for the next four year is as follows: Sales growth for years 1-3 Operating profit margin Net working capital to sales ratio Current assets to sales ratio Property, plant, and equipment to sales ratio Beginning sales Cash tax rate Total liabilities Cost of capital Number of shares 10.0% 16.0% 13.0% 18.0% 18.0% $27,272.73 30.0% S 4,000.00 12.0% 2,000.00 The management of Bergman Corporation wishes to estimate EVA for each of the next three years of the firm operation. Evaluation of the firm's invested capital reveals the following value beginning with the current period (year 0). Furthermore, the firm's investment banker conducted a study of the firm's cost of capital and estimated the weighted average cost of capital to be approximately 12 percent. Years Change in current assets Current assets apital expenditures Property, plant and equipment Total Capital : Total Assets . Non-interest liabilities Required S 354.55 390.00 S429.00 $ $4,909.09 5,26364 5,653.64 6,082.64 S 6,082.64 $ 490.91 540.00 594.00 S 4,909.09 5,400.00 5,940.00 S 6,534.00 $ 6,534.00 s11,593 64 $9,818.18 $10,663.64 s1261664 s1261664 Calculate Bergman's EVAs for years I through 4. What does this value tell you about the value being created by Bergman? What is Bergman's return on invested capital (ROIC) for each of the year I through 4? Relate the firm's ROIC to your EVA estimate. a. b. c. Calculate the present value of the firm's EVAs and market value added for years 1 through infinity d. Calculate Berman's market value.

Answer 1

Sales growth	10%
Operating margin	16%
Working capital to sales ratio	13%
Current Assets to sales ratio	18%
Property, plant & equipment to sales ratio	18%
Beginning sales	$ 27,272.73
Cash tax rate	30%
Total liabilities	$    4,000.00
Cost of capital	12%
No. of shares	2,000.00	assuming $1 per share

	Years
	0	1	2	3	4
Change in current assets		$        354.55	$        390.00	$        429.00
Current assets	$    4,909.09	$    5,263.64	$    5,653.64	$    6,082.64	$    6,082.64
CAPEX		$        490.91	$        540.00	$        594.00
PPE		$    5,400.00	$    5,940.00	$    6,534.00	$    6,534.00
Total Capital	$    9,818.19	$ 10,663.64	$ 11,593.64	$ 12,616.64	$ 12,616.64
Sales	$ 27,272.73	$ 30,000.00	$ 33,000.00	$ 36,300.00	$ 39,930.00
Operating profit	$    4,363.64	$    4,800.00	$    5,280.00	$    5,808.00	$    6,388.80
Tax	$    1,309.09	$    1,440.00	$    1,584.00	$    1,742.40	$    1,916.64
NOPAT	$    3,054.55	$    3,360.00	$    3,696.00	$    4,065.60	$    4,472.16
Capital Invested x Cost of Capital	$    1,178.18	$    1,279.64	$    1,391.24	$    1,514.00	$    1,514.00
a. )EVA	$    1,876.36	$    2,080.36	$    2,304.76	$    2,551.60	$    2,958.16
b). ROIC	31%	32%	32%	32%	35%
Discounting factor	1	0.892857143	0.79719388	0.71178025	0.63551808
c.) Net Present value of firm's EVA	$    1,876.36	$    1,857.47	$    1,837.34	$    1,816.18	$    1,879.97
d). Market Value added	$    7,818.19	$    8,663.64	$    9,593.64	$ 10,616.64	$ 10,616.64