On May 11, 2018, Yen Dollar, a portfolio manager at NewPoint, a mutual fund management firm, pored over analysts’ write-

Business, Finance, Economics, Accounting, Operations Management, Computer Science, Electrical Engineering, Mechanical Engineering, Civil Engineering, Chemical Engineering, Algebra, Precalculus, Statistics and Probabilty, Advanced Math, Physics, Chemistry, Biology, Nursing, Psychology, Certifications, Tests, Prep, and more.
Post Reply
answerhappygod
Site Admin
Posts: 899603
Joined: Mon Aug 02, 2021 8:13 am

On May 11, 2018, Yen Dollar, a portfolio manager at NewPoint, a mutual fund management firm, pored over analysts’ write-

Post by answerhappygod »

On May 11, 2018, Yen Dollar, a portfolio manager at NewPoint, a
mutual fund management firm, pored over analysts’ write-ups of
International Traders Corp.
International Traders is an expanding conglomerate, is a
manufacturing company whose product lines consist of lighting
fixtures, videodiscs, electronic timing devices, travel agencies,
and self-storage space. Dollar was considering buying some
shares for the fund she managed, the NewPoint Large-Cap Fund with
an emphasis on value investing.
International Traders Corp's analyst has projected the following
cash flows and growth rates for the next four years (in millions of
dollars):
Pro Forma Income Statement
2019
2020
2021
2022
2022
Growth Rate
0.2
0.2
0.15
0.1
0.05
Net sales
$550.0
$660.0
$759.0
$835.0
$877.0
Cost of goods sold (70%)
($385.0)
($462.0)
($531.0)
($584.0)
($614.0)
Selling/administrative expense (20%)
($110.0)
($132.0)
($151.8)
($167.0)
($175.4)
Depreciation (8%)
($44.0)
($52.8)
($60.7)
($66.8)
($70.2)
EBIT
$11.0
$13.2
$15.2
$16.7
$17.5
Interest
($5.0)
($6.0)
($8.0)
($10.0)
($10.0)
EBT
$6.0
$7.2
$7.2
$6.7
$7.5
Taxes (30%)
($1.8)
($2.2)
($2.2)
($2.0)
($2.3)
Net income
$4.2
$5.0
$5.0
$4.7
$5.3
All cash flows above are assumed to occur at end-of-year, and it
is expected to grow at rate of 5% after 2022. International
Traders currently has a market value capital structure of 20
percent debt with interest rate 10% and a beta of 2. Depreciation
schedule is 8 percent of net sales and the funds to replace
worn-out equipment is 6 percent of net sales. The company has 5
million shares, $50 million debt and $ 30 million in cash. The
risk-free rate is 3 percent and the market risk premium is 6
percent.
Answer the following questions:
Join a community of subject matter experts. Register for FREE to view solutions, replies, and use search function. Request answer by replying!
Post Reply