(Answered) Operating pro?ts and invested capital expected

Finance

Problem: You are valuing DistressCo, a company struggling to hold market share. The company currently generates $120 million in revenue, but its revenue is expected to shrink to $100 million next year. Cost of sales currently equals $90 million and depreciation equals $18 million. Working capital equals $36 million and equipment equals $120 million. Using this data, construct operating pro?t and invested capital for the current year. You decide to build an as-is valuation of DistressCo. To do this, you forecast each ratio (such as cost of sales to revenues) at its current level.

Required:

Question 1: Based on this forecast method, what are operating pro?ts and invested capital expected to be next year?

Question 2: What are two critical operating assumptions (identify one for pro?ts, and one for capital) embedded in this forecast method?

Question 3: Assume NOPLAT is expected to grow at 6%, ROIC equals 16%, and the weighted cost of capital is 10%. Using the key driver formula in chapter 2, what is the enterprise value for the company?

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