Scribd
Upload
4K views

FlashMemory Beta NPV

The document provides actual and forecasted financial statements for Flash Memory, Inc. assuming no new investment or stock issuance and a 9.25% borrowing rate. It shows sales growing from $77.1M in 2007 to $144M by 2012. Net income is forecasted to increase from $2.3M in 2007 to $3.8M in 2012. The balance sheet forecasts increasing assets, liabilities, and shareholders' equity over the period. It also provides calculations to determine the company's cost of capital and evaluates the net present value of investing in a new product line requiring $2.2M in equipment in 2010.

Uploaded by

Shubham Bhatia
Copyright
© © All Rights Reserved
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
4K views

FlashMemory Beta NPV

The document provides actual and forecasted financial statements for Flash Memory, Inc. assuming no new investment or stock issuance and a 9.25% borrowing rate. It shows sales growing from $77.1M in 2007 to $144M by 2012. Net income is forecasted to increase from $2.3M in 2007 to $3.8M in 2012. The balance sheet forecasts increasing assets, liabilities, and shareholders' equity over the period. It also provides calculations to determine the company's cost of capital and evaluates the net present value of investing in a new product line requiring $2.2M in equipment in 2010.

Uploaded by

Shubham Bhatia
Copyright
© © All Rights Reserved
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
You are on page 1/ 7

Flash Memory, Inc.

Actual and Forecasted Financial Statements Assuming No Investment in New Product Line, No Sale of New
Common Stock, and All Borrowings at 9.25%

Actual

Forecast

2007

2008

2009

2010

2011

2012

$77,131
$62,519
$14,612

$80,953
$68,382
$12,571

$89,250
$72,424
$16,826

$120,000
$97,320
$22,680

$144,000
$116,784
$27,216

$144,000
$116,784
$27,216

$3,726
$6,594
$4,292

$4,133
$7,536
$902

$4,416
$7,458
$4,952

$6,000
$10,032
$6,648

$7,200
$12,038
$7,978

$7,200
$12,038
$7,978

$480
-$39

$652
-$27

$735
-$35

$937
-$50

$1,323
-$50

$1,565
-$50

Income before income taxes

$3,773

$223

$4,182

$5,661

$6,604

$6,363

Income taxes @40%


Net income

$1,509
$2,264

$89
$134

$1,673
$2,509

$2,264
$3,396

$2,642
$3,963

$2,545
$3,818

$1.52

$0.09

$1.68

$2.28

$2.66

$2.56

Sales ( given)
Cost of goods sold=sales*.811
Gross margin
Research and development=Sales*.05
Selling, general and administrative=sales*.0836
Operating income
Interest expense=pre years notes payable*.0925
Other income (expenses)-Given

Earnings per share =net income/no of shares o/s

Exhibit TN-1 (continued)


Balance Sheet ($000s except shares outstanding and book value per share)
Actual

Forecast

2007

2008

2009

2010

2011

2012

$2,536
$10,988
$9,592
$309
$23,425

$2,218
$12,864
$11,072
$324
$26,478

$2,934
$14,671
$11,509
$357
$29,471

$3,960
$19,726
$13,865
$480
$38,031

$4,752
$23,671
$16,638
$576
$45,637

$4,752
$23,671
$16,638
$576
$45,637

$5,306
$792
$4,514

$6,116
$1,174
$4,942

$7,282
$1,633
$5,649

$8,182
$2,179
$6,003

$9,082
$2,793
$6,290

$9,982
$3,474
$6,508

$27,939

$31,420

$35,120

$44,034

$51,926

$52,145

Accounts payable=COGS*.6*30/365
Notes payable
Accrued expenses=Sales*.0073
Income taxes payable=Income tax*.1
Other current liabilities=Sales*.0062
Total current liabilities

$3,084
$6,620
$563
$151
$478
$10,896

$4,268
$8,873
$591
$9
$502
$14,243

$3,929
$10,132
$652
$167
$554
$15,434

$4,799
$14,306
$876
$226
$744
$20,952

$5,759
$16,914
$1,051
$264
$893
$24,881

$5,759
$13,324
$1,051
$255
$893
$21,282

Common stock at $0.01 per share par value


Paid in capital in excess of par value
Retained earnings (retained earnings pre yr+cu year net income)
Total shareholders' equity

$15
$7,980
$9,048
$17,043

$15
$7,980
$9,182
$17,177

$15
$7,980
$11,691
$19,686

$15
$7,980
$15,087
$23,082

$15
$7,980
$19,050
$27,045

$15
$7,980
$22,868
$30,863

Total liabilities & shareholders' equity

$27,939

$31,420

$35,120

$44,034

$51,926

$52,145

Number of shares outstanding(given)

1,491,662

1,491,662

1,491,662

1,491,662

1,491,662

1,491,662

Book value per share=Sh equity/(shares o/s *1000)

$11.43

$11.52

$13.20

$15.47

$18.13

$20.69

Return on equity =(net income/sh equity)*100


Interest coverage ratio (times)=Op income/int
Notes payable / accounts receivable
Notes payable / shareholders' equity
Total outside liabilities / shareholders' equity

13.3%
8.9
60.2%
38.8%
63.9%

0.8%
1.4
69.0%
51.7%
82.9%

12.7%
6.7
69.1%
51.5%
78.4%

14.7%
7.1
72.5%
62.0%
90.8%

14.7%
6.0
71.5%
62.5%
92.0%

12.4%
5.1
56.3%
43.2%
69.0%

Cash=Sales*.033
Accounts receivable=Sales*60/365
Inventories=COGS*52/365
Prepaid expenses=Sales*.004
Total current assets
Property, plant & equipment at cost ( pre year value+900)
Less: Accumulated depreciation (accu dep+pre year pl value*.075)
Net property, plant & equipment
Total assets

Flash Memory, Inc.


Calculation of Cost of Capital
Step 1 - To calculate Asset beta

Micron Technology
Book value of equity = Sh o/s *B.V of share
Book value of debt=B.V of equity*.33/.67
Market value of equity=shares o/s*M.V
D/V
E/V
D = debt beta(Assumed)
E = equity or levered beta(Given)
A = asset or unlevered beta =A = D x (D/V) + E x (E/V)
SanDisk Corporation
Book value of equity = Sh o/s *B.V of share
Book value of debt=B.V of equity*.33/.67
Market value of equity=shares o/s*M.V
D/V
E/V
D = debt beta(Assumed)
E = equity or levered beta(Given)
A = asset or unlevered beta =A = D x (D/V) + E x (E/V)

0.20
1.25
0.00

0.20
1.36
-

STEC, Inc.
Book value of equity = Sh o/s *B.V of share
Book value of debt=B.V of equity*.33/.67
Market value of equity=shares o/s*M.V
D/V
E/V
D = debt beta(Assumed)
E = equity or levered beta(Given)
A = asset or unlevered beta =A = D x (D/V) + E x (E/V)
Average beta of the industry
Calculation of Cost of Capital

0
1

0.00

Step 2 - Calculation of cost of equity capital for Flash Memory, Inc.:

A = D x (D/V) + E x (E/V), where E = market value of equity and D = 0.2


Flash Memory, Inc.

D = target value of debt


E = target value of equity
D = debt beta
A = average asset beta for the industry
E = equity or levered beta=(A- D*D/V)/E/V

18.0%
82.0%
0.20

Cost of equity capital for Flash


Ke = Rf + E x Market Risk Premium
Rf = risk-free rate of return
E = Flash's equity or levered beta
Assumed market risk premium
Ke = Flash's cost of equity capital=Rf + E x Market Risk Premium

3.70%
0.00
6.00%

Step 3 - Calculation of cost of capital for Flash Memory, Inc.:


K = D/Vd x Kd x (1 - T) + E/V x Ke
We
Wd
Kd
income tax rate
Ke = Flash' cost of equity capital
K = D/Vd x Kd x (1 - T) + E/V x Ke

0.82
0.18
7.25%
40.00%

sd
1.36
1.14074
1.19221
1.05236
1.13171
1.19096

mc
1.25
1.29552
0.96486

0.18
0.82

Flash Memory, Inc.


Net Present Value of Investment in New Product Line ($000s)
2010

2011

2012

2013

2014

2015

$7,322

$7,322

$2,877

$1,308

$0

$21,600

$28,000

$28,000

$11,000

$5,000

$0

$0

$0

$0

$0

$300

$0

$0

$0

$0

Net income
Depreciation of equipment=Cost of equip/5

$0

$0

$0

$0

$0

Cash flow from operations

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

Investment in equipment (Given)

-$2,200

Net working capital required to support sales= Next years Sales*.2615$5,648


Investment in net working capital (the year-on-year change)
Sales (Given)
Cost of goods sold (includes equipment depreciation)=Sales*.79
Research & development
Selling, general & administrative=Sales*.0836
Launch promotion
Income before income taxes
Income taxes@40%

Total cash flow=Invest+w.c diff+op cash flows


NPV @ 10.05% cost of capital
IRR

-$2,200

Total

You might also like