CP

(National Geographic (Little) Kids) #1

450 CHAPTER 12 Corporate Valuation, Value-Based Management, and Corporate Governance


TABLE 12-7 Initial Projections for the Bell Instruments Division (Millions of Dollars)

Actual Projected
2002 2003 2004 2005 2006 2007

PANELA: INPUTS


Sales growth rate 5% 5% 5% 5% 5%
Costs/sales 85% 85 85 85 85 85
Depreciation/net plant 10 10 10 10 10 10
Cash/sales 1 1 1 1 1 1
Accounts receivable/sales 5 5 5 5 5 5
Inventories/sales 15 15 15 15 15 15
Net plant/sales 30 30 30 30 30 30
Accounts payable/sales 5 5 5 5 5 5
Accruals/sales 6 6 6 6 6 6
Tax rate 40 40 40 40 40 40


PANELB: PARTIALINCOMESTATEMENT


Net sales $500.0 $525.0 $551.3 $578.8 $607.8 $638.1
Costs (except depreciation) $425.0 $446.3 $468.6 $492.0 $516.6 $542.4
Depreciation 15.0 15.8 16.5 17.4 18.2 19.1
Total operating costs $440.0 $462.0 $485.1 $509.4 $534.8 $561.6
EBIT $ 60.0 $ 63.0 $ 66.2 $ 69.5 $ 72.9 $ 76.6


PANELC: PARTIALBALANCESHEETS


Operating Assets


Cash $ 5.0 $ 5.3 $ 5.5 $ 5.8 $ 6.1 $ 6.4
Accounts receivable 25.0 26.3 27.6 28.9 30.4 31.9
Inventories 75.0 78.8 82.7 86.8 91.2 95.7
Operating current assets $105.0 $110.3 $115.8 $121.6 $127.6 $134.0


Net plant and equipment $150.0 $157.5 $165.4 $173.6 $182.3 $191.4


Operating Liabilities


Accounts payable $25.0 $26.3 $27.6 $28.9 $30.4 $31.9
Accruals 30.0 31.5 33.1 34.7 36.5 38.3
Operating current liabilities $55.0 $57.8 $60.6 $63.7 $66.9 $70.2


To better understand these results, we can express the firm’s value in terms of four
fundamental wealth drivers:

g growth in sales
OP Operating profitability (OP) NOPAT/Sales
CR Capital requirements (CR) Operating capital/Sales
WACC Weighted average cost of capital

How do these drivers affect the value of a firm? First, the sales growth rate gener-
ally, but not always, has a positive effect on value, provided the company is profitable

Corporate Valuation, Value-Based Management, and Corporate Governance 447
Free download pdf