Question: 4. Vanguard Office Supplies Is A Nationwide Retail Chain That Offers Office Supplies And Office Furniture. Company Management Has Decided That, From Both A Competitive And A Cost-cutting Standpoint, Vanguard Should Offer Its Own Private-label Brands For Products Like Student Notebooks, Fillers, Ledgers And Journals, Bond And Linen Paper, And Other Products. ... This problem has been solved! See the answer 4. Vanguard Office Supplies is a nationwide retail chain that offers office supplies and office furniture. Company management has decided that, from both a competitive and a cost-cutting standpoint, Vanguard should offer its own private-label brands for products like student notebooks, fillers, ledgers and journals, bond and linen paper, and other products. To accomplish this objective, Vanguard is considering the purchase of Omega Paper, a manufacturer of paper products and notebooks. A five-year income forecast for Omega is given, along with other pertinent information. Vanguard plans to keep Omega's debt-equity ratio at its current level [Use spreadsheet Valuation Workbook provided] Five-Year Forecast ($ MM) Year 1 Year 2 Year 3 Year 4 Year 5 Revenue 957.9 972.2 986.8 1,001.6 1,016.6 Cost of goods sold 862.1 875.0 888.1 901.4 915.0 SG&A 67.0 68.1 69.1 70.1 71.2 EBIT 28.7 29.2 29.6 30.0 30.5 Interest expense 12.5 13.4 13.8 14.1 14.4 EBT 16.2 15.7 15.8 16.0 16.1 Taxes 5.5 5.3 5.4 5.4 5.5 Net Income 10.7 10.4 10.5 10.5 10.6 Other projections: Change in net working capital (5.7) (5.8) (5.9) (6.0) (6.1) Capital expenditures 28.7 29.2 80.3 62.2 30.5 Depreciation 52.7 53.5 54.3 55.1 55.9 Tax rate 34.0% Book value of debt ($MM) 192.3 Book value of equity ($MM) 364.9 Share price ($) 10.5 Beta 0.76 Shares outstanding (MM) 51.5 Interest rate on company debt 6.5% Current bond yields on similarly rated companies 6.1% 10-year T-bond rate 5.0% Inflation 2.5% Market risk premium 6.0% Calculate the equity value in total and per share of Omega using the discounted cash flow method (show all your calculations for credit)
Question: 4. Vanguard Office Supplies Is A Nationwide Retail Chain That Offers Office Supplies And Office Furniture. Company Management Has Decided That, From Both A Competitive And A Cost-cutting Standpoint, Vanguard Should Offer Its Own Private-label Brands For Products Like Student Notebooks, Fillers, Ledgers And Journals, Bond And Linen Paper, And Other Products. ...
This problem has been solved!
See the answer4. Vanguard Office Supplies is a nationwide retail chain that offers office supplies and office furniture. Company management has decided that, from both a competitive and a cost-cutting standpoint, Vanguard should offer its own private-label brands for products like student notebooks, fillers, ledgers and journals, bond and linen paper, and other products. To accomplish this objective, Vanguard is considering the purchase of Omega Paper, a manufacturer of paper products and notebooks. A five-year income
|
Five-Year Forecast ($ MM) |
Year 1 |
Year 2 |
Year 3 |
Year 4 |
Year 5 |
|
Revenue |
957.9 |
972.2 |
986.8 |
1,001.6 |
1,016.6 |
|
Cost of goods sold |
862.1 |
875.0 |
888.1 |
901.4 |
915.0 |
|
SG&A |
67.0 |
68.1 |
69.1 |
70.1 |
71.2 |
|
EBIT |
28.7 |
29.2 |
29.6 |
30.0 |
30.5 |
|
Interest expense |
12.5 |
13.4 |
13.8 |
14.1 |
14.4 |
|
EBT |
16.2 |
15.7 |
15.8 |
16.0 |
16.1 |
|
Taxes |
5.5 |
5.3 |
5.4 |
5.4 |
5.5 |
|
Net Income |
10.7 |
10.4 |
10.5 |
10.5 |
10.6 |
|
Other projections: |
|||||
|
Change in net working capital |
(5.7) |
(5.8) |
(5.9) |
(6.0) |
(6.1) |
|
Capital expenditures |
28.7 |
29.2 |
80.3 |
62.2 |
30.5 |
|
|
52.7 |
53.5 |
54.3 |
55.1 |
55.9 |
|
Tax rate 34.0% |
|||||
|
Book value of debt ($MM) |
192.3 |
||||
|
Book value of equity ($MM) |
364.9 |
||||
|
Share price ($) |
10.5 |
||||
|
Beta |
0.76 |
||||
|
Shares outstanding (MM) |
51.5 |
||||
|
Interest rate on company debt |
6.5% |
||||
|
Current bond yields on similarly rated companies |
6.1% |
||||
|
10-year T-bond rate |
5.0% |
||||
|
Inflation |
2.5% |
||||
|
Market risk premium |
6.0% |
Calculate the equity value in total and per share of Omega using the discounted cash flow method (show all your calculations for credit)
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