Question

Ogier Incorporated currently has $800 millions in sales, which are projected to grow by 10% in Year 1 and 5% in Year 2. Its operating profitability ratio (OP) is 10%, and its capital requirement ratio (CR) is 80%?

a. What is the projected sales in Years 1 and 2?

b. What are the projected amounts of net operating profit after taxes (NOPAT) for Years 1 and 2?

c. What i sthe projected amount of Total net operating (OpCap) for Years 1 and 2?

d. What is the projected FCF for year 2?

Answer 1

a. Projected Sales:
Year 1: $880 millions [being $800 millions and 10% of $800 millions]
Year 2: $924 millions [being $880 millions and 5% of $880 millions]

b. Projected NOPAT:
Year 1: $88 millions [being 10% of $880 millions]
Year 2: $92.4 millions [being 10% of $924 millions]
This is after assuming that Operating Profitability ratio of 10% is after tax, due to absence of any information on tax rates.

c. Projected OpCap:
Year 1: $704 millions [being 80% of $880 millions]
Year 2: $739.2 millions [being 80% of $924 millions]
This is after assuming that OpCap ratio of 80% is on the Sales Amount.

d. Projected FCF for Year 2:
Projected FCF for year 2: NOPAT - Capital Expenditures = $92.4 millions - [$739.2 millions - $704 millions] = $57.2 millions

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