See the attached file and follow 100% exactly the guidelines. All information are in the pdf attached, but you need to make some assumption that you need to explain. See the pdf
MGMT 2620 - Final Part B - Spring '18 Final Exam Part B MGMT S2620 – Fall 2019 Hi Class, For Part B of your final exam, you are required to perform valuation for HES Company as given below. Submit your final project in a PDF file to Canvas by 11:59 pm December 10th, 2019 EST. No late submission is accepted! Plan and manage your time wisely! Show detail work and discuss any assumptions you make. The total points for this assignment is 200 points. You may conduct your calculations in Excel. However, you should copy and paste it in a PDF file for submission. Submit only one file. Consider HES Company’s financial statements given below. This company belongs to the retail sector and the current market price is $20 per shares with 50,000 common shares outstanding. All net income is re-invested back into the company. Assume the Company’s beta on YEAR 0 is estimated to be 1.75, due to lack of historical data. For the foreseeable future risk-free rate is 2.5%, and market risk premium is 11%. Furthermore, assume the company has a long-term growth rate in comprehensive income and FCF for 2.5% after the fifth year. Net income and comprehensive income will be identical. Expect debt to equity ratio and WACC to be the same after year 5 and beyond. Required: 1) Use at least six financial ratios to assess and discuss profitability (three or more ratios) and risk analysis (three or more ratios) for the company. (50 pts) 2) What is the company's value using the following methods? a) Residual Income (30 pts) b) Free Cash Flow (FCFF and FCFE) Assume no change in cash liquidity (50 pts) c) Valuation Ratios (Market Multiples), use at least three ratios. (30 pts) d) Analyze and explain which one of the above valuation methods provides a better and more realistic valuation based on the solutions and data in this case. (40 pts) Good luck to you all! Dr. Gandevani HES Company Financial Statements Income Statements Year 1 Year 2 Year 3 Year 4 Year 5 Revenues $2,173,600 $2,282,280 $2,396,394 $2,516,214 $2,667,024 Cost of Sales 1,395,708 1,490,980 1,578,910 1,685,954 1,814,508 Gross Profit $777,892 $791,300 $817,484 $830,259 $852,516 Accounting $6,240 $6,552 $6,880 $7,224 $7,585 Advertising & Promotion $47,759 $42,640 $40,363 $37,778 $34,853 Bank Charges $43,156 $45,314 $47,579 $49,958 $52,457 Compensation & Benefits $256,509 $264,204 $272,130 $280,294 $288,702 Consulting Fees $2,496 $0 $0 $0 $0 Insurance $1,040 $1,092 $1,147 $1,204 $1,265 Lease - Facilities $349,440 $349,440 $349,440 $349,440 $349,440 Legal & 500 500 500 500 500 Professional Licenses & Fees 500 510 520 531 541 Maintenance 600 612 624 637 649 Miscellaneous 1,800 1,836 1,873 1,910 1,948 Office supplies 2,700 2,754 2,809 2,865 2,923 Security 720 742 764 787 810 Telephone 1,800 1,836 1,873 1,910 1,948 Utilities 4,200 4,410 4,631 4,862 5,105 Website 1,800 1,800 1,800 1,800 1,800 Total Operating Exp. 721,260 724,242 732,932 741,700 750,525 EBIDTA $56,633 $67,058 $84,552 $88,560 $101,991 Depreciation 4,916 4,916 4,916 4,916 4,916 Operating Profit $51,717 $62,142 $79,636 $83,644 $97,075 Interest Expense 11040 10488 9936 9384 8832 Earnings Before Taxes 40,677 51,654 69,700 74,260 88,243 Income Taxes 8,542 10,847 14,637 15,595 18,531 Net Income $32,135 $40,807 $55,063 $58,665 $69,712 Balance Sheets Begin Year 1 Year 2 Year 3 Year 4 Year 5 Cash $33,150 $50,685 $75,391 $112,629 $151,485 $199,107 Inventory 77,000 191,916 213,416 237,641 264,950 278,197 Total Current Assets $110,150 $242,601 $288,807 $350,270 $416,435 $477,304 Fixed Assets 33,850 33,850 33,850 33,850 33,850 33,850 Less: Depreciation 0 4,916 4,916 4,916 4,916 24,579 Net Fixed Assets 33,850 28,934 28,934 28,934 28,934 9,271 Total Assets $144,000 $271,535 $317,741 $379,204 $445,369 $486,575 Accounts Payable 100,000 110,000 121,000 133,100 150,000 Long Term Debt 92,000 87,400 82,800 78,200 73,600 69,000 Total 92,000 187,400 192,800 199,200 206,700 219,000 Liabilities Owner's Equity Paid in Capital 52,000 52,000 52,000 52,000 52,000 52,000 Retained Earnings 0 32,135 72,941 128,004 186,669 215,575 Total $144,000 $271,535 $317,741 $379,204 $445,369 $486,575 Liabilities & Equity