Now let’s put everything together and try to calculate the (projected) FCF of th

Question

Now let’s put everything together and try to calculate the (projected) FCF of the firm LuluYoga for 2018.

Here is some financial information you have gathered with the help of your intern peers and supervisors at the investment bank.

The analyst team has been talking to the management of LuluYoga and they estimate that sales are going to grow by 5% from 2017 to 2018.

Financial ratios that will allow you to compute the different component of FCF are in the table. Use the historical 3-year average for all financial ratios as your estimate of the financial ratio in 2018, with two exceptions: ARDOH and APDOH. You talked to senior managers of the firm and are very confident that in 2018 AR/DOH will be 45 and AP DOH will be 20.

The corporate tax rate is 35%

2015

2016

2017

2018 (projected)

Sales

4,000,000

6,000,000

9,000,000

-

COGS/Sales

60.20%

60.60%

60.40%

-

OpExp/Sales

23.00%

22.80%

22.60%

-

AR/DOH

29

35

36

45

Inv DOH

45

44

46

-

NFATO

13

13.5

13.2

-

AP DOH

-

-

20

20

Initial inventory

196,877

Q2. What is the NOP in 2018?

Select the best answer from the following:

A. 555,660

B. 1,587,600

C. 1,031,940

2015

2016

2017

2018 (projected)

Sales

4,000,000

6,000,000

9,000,000

-

COGS/Sales

60.20%

60.60%

60.40%

-

OpExp/Sales

23.00%

22.80%

22.60%

-

AR/DOH

29

35

36

45

Inv DOH

45

44

46

-

NFATO

13

13.5

13.2

-

AP DOH

-

-

20

20

Initial inventory

196,877

Q2. What is the NOP in 2018?

Select the best answer from the following:

A. 555,660

B. 1,587,600

C. 1,031,940

Explanation / Answer

Lets calculate the components of FCF for Projected Year 2018 in line with data provided above.

NOP In 2018 is 1,587,600. Option B

Parameter Projected Year 2018 Remarks Sales 9,450,000.00 5% increase from level of sales in 2017 COGS % 60.40% Average of Last 3 Years Ratio Op Exp/Sales 22.80% Average of Last 3 Years Ratio AR/DOH 45 As given in the table INV DOH 44 Average of last 3 years NFATO 13.2333 Average of last 3 years AP DOH 20 As provided in the table COGS 5,707,800 60.40% Of sales Gross Profit 3,742,200 Sales - COGS Operating Expenses 2,154,600 22.80% of Sales NOP 1,587,600 Gross Profit - Operating Expenses TAX 555,660 TAX AT 35% NOPAT 1,031,940 NOP - TAX

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