Reference no: EM132983884

As an analyst in the valuation team your job is to perform significant financial modeling and analysis. Your company is seeing a new sales strategy that require your input. The strategy will be effective for the upcoming 4 Years. If the company adopts the new strategy, sales will grow at the rate of 15% per year for three years. Other ratios such as: Asset turnover, gross margin, the capital structure and income tax will remain unchanged. However, depreciation would be applicable at 8% of net fixed assets at the starting of the year. Moreover, the target rate of return for the company is 12%.

Additional financial information for current year is mentioned below:

Income Statement

Sales50,000

Gross Margin (15%)7,500

Admin., selling and Distribution expenses (7%)3,500

Profit before tax 10,000

Tax (35%) 3,500

Profit After Taxes 6,500

Balance Sheet

Fixed Assets 17,000

Current Assets 12,000

Equity 25,000

Problem 1: Determine value of business before adoption of new strategy?

Problem 2: What will be the incremental value and value of business after adoption of this new strategy?