As an analyst in the valuation team your job is to perform significant financial modeling and analysis. Your company is seeing a new sales strategy that require your input. The strategy will be effective for the upcoming 4 Years. If the company adopts the new strategy, sales will grow at the rate of 15% per year for three years. Other ratios such as: Asset turnover, gross margin, the capital structure and income tax will remain unchanged. However, depreciation would be applicable at 8% of net fixed assets at the starting of the year. Moreover, the target rate of return for the company is 12%. Additional financial information for current year is mentioned below: Income Statement Sales -50,000 Gross Margin (15%) -7,500 Admin., selling and Distribution expenses (7%) -3,500 Profit before tax -10,000 Tax (35%) -3,500 Profit After Taxes -6,500 Balance Sheet Fixed Assets -17,000 Current Assets -12,000 Equity-25,000 Determine value of business before adoption of new strategy? What will be the incremental value and value of business after adoption of this new strategy?
As an analyst in the valuation team your job is to perform significant financial modeling and analysis. Your company is seeing a new sales strategy that require your input. The strategy will be effective for the upcoming 4 Years. If the company adopts the new strategy, sales will grow at the rate of 15% per year for three years. Other ratios such as: Asset turnover, gross margin, the capital structure and income tax will remain unchanged. However,
Income Statement
Sales -50,000
Gross Margin (15%) -7,500
Admin., selling and Distribution expenses (7%) -3,500
Profit before tax -10,000
Tax (35%) -3,500
Profit After Taxes -6,500
Balance Sheet
Fixed Assets -17,000
Current Assets -12,000
Equity-25,000
Determine value of business before adoption of new strategy?
What will be the incremental value and value of business after adoption of this new strategy?
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