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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?
Financial Statement Analysis and Preparation
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