Posted: April 20th, 2022

INSTRUCTIONS:
NOT FOLLOWING THE INSTRUCTIONS WILL COST YOU. HAVING INCORRECT
ANSWERS BECAUSE OF FORMAT WILL NOT BE FORGIVEN. READ CAREFULLY THE
INSTRUCTIONS.
For each of the problems you will need to use your Student ID number. The last four digits of
your ID number are to be used as A, B, C and D. For example, if your student ID is 35621215: A = 1, B = 2,
C = 1, and D = 5. Therefore, for any time that A appears as a number, you may use 1, for B you will use 2
and so on. DUE DATE IS Friday April 15, 2022. NO LATE SUBMISSIONS.
FOR THE FOLLOWING PROBLEMS YOU DON’T HAVE TO SHOW PROCESS, JUST THE
ANSWERS IN AN EXCEL DOCUMENT (“ANSWERS, EXAM 3.XLSX”). Each of the
questions has a specific cell for you to put your answers. You MUST submit the excel
document. Submitting a PDF document is optional.
ANSWER IN PERCENTAGE FOR PERCENTAGE ANSWERS. If your answer is 0.0405,
then answer 4.05. DO NOT USE %.
ANSWER IN DOLLARS FOR NUMERICAL NUMBERS, USE FOUR DECIMALS. If your
answer is 100M you must enter 100000000.0000, for 20M you must enter 20000000.000, etc.
HOW TO FILL OUT THE EXCEL DOCUMENT:
Student ID: Cell A2
Problem 1, A: Cell B2
Problem 1, B: Cell C2
Problem 2, A: Cell D2
Problem 2, B: Cell E2
Problem 2, C: Cell F2
Problem 2, D: Cell G2
Problem 3, A: Cell H2
Problem 3, B: Cell I2
Problem 3, C: Cell J2
Problem 3, D: Cell K2
Problem 3, E: Cell L2
Problem 3, F: Cell M2
Problem 3, G: Cell N2
Problem 3, H: Cell O2
1) Medtronic firm has $[(1,000,000*(A+B)+$55,000,000] in equity and $55,000,000 in debt
and forecast $[(1,000,000*(C)+$22,000,000] in net income for the year. It currently pays
dividends equal to [(A+B+C+D)]% of its net income.
a. What would their internal growth rate be?
NOTE: Answer in percentage. If your answer is 0.0405, then answer 4.05.
b. What would their sustainable growth rate be?
NOTE: Answer in percentage. If your answer is 0.0405, then answer 4.05.
2) For the following problems, use Exhibit A. For exhibit A, the amount of sales depends on
the production volume shown below. The dividend policy is to pay [21+D+C]% in
dividends. Construct the Production volume table based on your student ID number as per
the instructions shown below.
a. What will be the depreciation for 2023?
NOTE: Provide your answers in dollars. E.G. for 100M you must
enter 100000000.0000, for 20M you must enter 20000000.000, etc.
b. What will be the Inventory for 2025?
NOTE: Provide your answers in dollars. E.G. for 100M you must
enter 100000000.0000, for 20M you must enter 20000000.000, etc.
c. What will be the accounts payable for 2024?
NOTE: Provide your answers in dollars. E.G. for 100M you must
enter 100000000.0000, for 20M you must enter 20000000.000, etc.
d. Imagine that the corporation decides to use debt for any external financing, what
would be the amount of debt in 2022? (If no net new financing is needed, then
answer with a negative number)
NOTE: Provide your answers in dollars. E.G. for 100M you must
enter 100000000.0000, for 20M you must enter 20000000.000, etc.
3) For the following problems, use Exhibit B. Exhibit B has the balance sheet and Income
Statement projections for a specific company. The company is evaluating if it is worth it
to have the capital investment as showed in the Capital Investment Table. The EBITDA
multiplier of similar companies [(D+5.2)]. The debt used has a coupon of [(C+3.5)]%. The
WACC is [7+C+D+2]%.
a. What is the increase in Net Working Capital for 2022?
NOTE: Provide your answers in dollars. E.G. for 100M you must
enter 100000000.0000, for 20M you must enter 20000000.000, etc.
b. What is the increase in Net Working Capital for 2023?
NOTE: Provide your answers in dollars. E.G. for 100M you must
enter 100000000.0000, for 20M you must enter 20000000.000, etc.
c. What would be the Free Cash Flow for 2022?
NOTE: Provide your answers in dollars. E.G. for 100M you must
enter 100000000.0000, for 20M you must enter 20000000.000, etc.
d. What would be the Free Cash Flow for 2023?
NOTE: Provide your answers in dollars. E.G. for 100M you must
enter 100000000.0000, for 20M you must enter 20000000.000, etc.
e. What is the present value of the Free cash flows?
NOTE: Provide your answers in dollars. E.G. for 100M you must
enter 100000000.0000, for 20M you must enter 20000000.000, etc.
f. What is the present value of the continuation value for the firm?
NOTE: Provide your answers in dollars. E.G. for 100M you must
enter 100000000.0000, for 20M you must enter 20000000.000, etc.
g. What is the present value of the Interest Tax Shield?
NOTE: Provide your answers in dollars. E.G. for 100M you must
enter 100000000.0000, for 20M you must enter 20000000.000, etc.
h. What is the Firm Value with the expansion of the project?
NOTE: Provide your answers in dollars. E.G. for 100M you must
enter 100000000.0000, for 20M you must enter 20000000.000, etc.
2021 2022 2023 2024 2025 2026
Income Statement
1 Sales Revenue $ 37,500.00
2 less: Cost of Goods Sold 29,625.00 $
3 EBITDA $ 7,875.00
4 less: Depreciation Expense 4,125.00 $
5 EBIT $ 3,750.00
6 less: Interest and Other Expenses 750.00 $
7 PRE-TAX INCOME $ 3,000.00
8 less: Income Tax 1,050.00 $
9 NET INCOME 1,950.00 $
Production Volume (000s units)
1 Market Size $ 10,000.00 $ 10,300.00 $ 10,609.00 $ 10,927.27 $ 11,255.09 $ 11,592.74
2 Market Share 10.00% [10+(D/2)+2]% [10+2*(D/2)+4]% [10+3*(D/2)+6]% [10+4*(D/2)+8]% [10+5*(D/2)+10]%
3 Production Volume (Market Size X Market Share) 1000.00
4 Average Sales Price $37.50 $38.25 $39.02 $39.80 $40.59 $41.40
Integrated Financial Statements
Exhibit A: Pro Forma Financial Statements
DEPARTMENT OF BUSINESS AND ECONOMICS BBA 308 | EXAM 3 Corporation Finance
2021 2022 2023 2024 2025 2026
Integrated Financial Statements
Exhibit A: Pro Forma Financial Statements
Balance Sheet
1 ASSETS
2 Cash and Equivalents 6,375.00 $
3 Accounts Receivable 6,750.00 $
4 Inventory 7,125.00 $
5 CURRENT ASSETS 20,250.00 $
6 Property, Plant and Equipment 21,375.00 $
7 TOTAL ASSETS 41,625.00 $
8 LIABILITIES AND EQUITY
9 Accounts Payable 8,625.00 $
10 CURRENT LIABILITIES 8,625.00 $
11 Long-Term Debt 7,500.00 $
12 TOTAL LIABILITIES 16,125.00 $
13 STOCKSHOLDER’S EQUITY 25,500.00 $
14 Retained Earnings – $
15 TOTAL EQUITY 25,500.00 $
16 TOTAL LIABILITIES AND EQUITY 41,625.00 $
DEPARTMENT OF BUSINESS AND ECONOMICS BBA 308 | EXAM 3 Corporation Finance
2021 2022 2023
Income Statement
1 Sales Revenue $ 52,360.00 $ 77,513.27 $ 105,077.99
2 less: Cost of Goods Sold $ 41,364.40 $ 61,235.48 $ 83,011.61
3 EBITDA $ 10,995.60 $ 16,277.79 $ 22,066.38
4 less: Depreciation Expense $ 5,759.60 $ 8,526.46 $ 11,558.58
5 EBIT $ 5,236.00 $ 7,751.33 $ 10,507.80
6 less: Interest and Other Expenses $ 650.00 $ 650.00 $ 6,150.00
7 PRE-TAX INCOME $ 4,586.00 $ 7,101.33 $ 4,357.80
8 less: Income Tax $ 1,605.10 $ 2,485.46 $ 1,525.23
9 NET INCOME $ 2,980.90 $ 4,615.86 $ 2,832.57
Balance Sheet
1 ASSETS
2 Cash and Equivalents $ 8,901.20 $ 13,177.26 $ 17,863.26
3 Accounts Receivable $ 9,424.80 $ 13,952.39 $ 18,914.04
4 Inventory $ 9,948.40 $ 14,727.52 $ 19,964.82
5 CURRENT ASSETS $ 28,274.40 $ 41,857.16 $ 56,742.11
6 Property, Plant and Equipment $ 29,845.20 $ 44,182.56 $ 59,894.45
7 TOTAL ASSETS $ 58,119.60 $ 86,039.73 $ 116,636.56
8 LIABILITIES AND EQUITY
9 Accounts Payable $ 12,042.80 $ 17,828.05 $ 24,167.94
10 CURRENT LIABILITIES $ 12,042.80 $ 17,828.05 $ 24,167.94
11 Long-Term Debt $ 6,500.00 $ 61,500.00 $ 61,500.00
12 TOTAL LIABILITIES $ 18,542.80 $ 79,328.05 $ 85,667.94
13 STOCKSHOLDER’S EQUITY $ 39,576.80 $ 74,134.00 $ 74,134.00
14 Retained Earnings $ – $ 3,692.69 $ 2,266.06
15 TOTAL EQUITY $ 39,576.80 $ 77,826.69 $ 76,400.06
16 TOTAL LIABILITIES AND EQUITY $ 58,119.60 $ 157,154.74 $ 162,067.99
Net Working Capital Requirements
1 Current Assets
2 Current Liabilities
3 Net Working Capital
4 Increase in Net Working Capital
Capital Investment
1 Capital Investment $ 2,500.00 $ 57,500.00 $ 8,500.00
Integrated Financial Statement Template
Exhibit B: Free Cash Flow and Valuation
DEPARTMENT OF BUSINESS AND ECONOMICS BBA 308 | EXAM 3
Corporation Finance
2021 2022 2023
Integrated Financial Statement Template
Exhibit B: Free Cash Flow and Valuation
Free Cash Flow (000s)
1 Net Income
2 Plus: After-Tax Interes Expense
3 Unlevered Net Income
4 Plus: Depreciation
5 Less: Increases in NWC
6 Less: Capital Expenditures
7 Free Cash Flow of Firm
Valuation of the Growth
1 Free Cash Flow of the Firm
2 PV of the Cash Flow
3 Continuation Value
4 PV of Continuation Value
5 net Interest Expense
6 Interest Tax Shield
7 PV Interest Tax Shield
8 Firm Value
DEPARTMENT OF BUSINESS AND ECONOMICS BBA 308 | EXAM 3
Corporation Finance

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