cooper workings

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Condensed Operating and Stockholder Information, Nicholson File Com 1967 1968 1969 Operations Net Sales $48.5 $49.1 $53.7 Cost of goods sold Depreciation expense Interest expense Other deductions Income before taxes Taxes Net Income Percentage of Sales Cost of goods sold Income before taxes Stockholder Information Earnings per share Dividends per share Book value per share Market price Price/earnings ratio From Balance Sheet Accounts receivables Accounts payable Inventories Net plant and equipment Current Liabiliites Long term Debt Common Stock Step 1: Find Average Sales Growth Net Sales $48.5 $49.1 $53.7 Growth 1.24% 9.37% Average Sales Growth Step 2: Find Industry Growth Industry Growth Selling, general and administrative expenses Selling genereal and administrative expenses

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This is with regards to the excel working on HBS case of Cooper

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Page 1: Cooper Workings

Condensed Operating and Stockholder Information, Nicholson File Company, 967 - 1971 (millions of dollars except per-share data)1967 1968 1969 1970

OperationsNet Sales $48.5 $49.1 $53.7 $54.7 Cost of goods sold

Depreciation expenseInterest expenseOther deductionsIncome before taxesTaxesNet Income

Percentage of SalesCost of goods sold

Income before taxes

Stockholder InformationEarnings per shareDividends per shareBook value per shareMarket pricePrice/earnings ratio

From Balance SheetAccounts receivablesAccounts payableInventoriesNet plant and equipmentCurrent LiabiliitesLong term DebtCommon Stock

Step 1: Find Average Sales Growth

Net Sales $48.5 $49.1 $53.7 $54.7 Growth 1.24% 9.37% 1.86%Average Sales Growth

Step 2: Find Industry GrowthIndustry Growth

Selling, general and administrative expenses

Selling genereal and administrative expenses

Page 2: Cooper Workings

Step 3: Find Cost of DebtLong Term DebtInterest ExpenseCost of Debt

Step 4: Find Cost of EquityMarket price per share, pDividend per share, dGrowth rate, g

Step 4: Find WACCWeight of DebtWeight of EquityTax RateWACC

Step 5:

1972 1973 1974 1975Net Sales $57.18 $59.11 $62.66 $66.42 Cost of Goods Sold $37.16 $38.42 $40.73 $43.17 Gross Profit $20.01 $20.69 $21.93 $23.25

$10.86 $11.23 $11.91 $12.62 Less: Depreciation expense $2.10 $2.10 $2.10 $2.10 Interest expense $0.80 $0.80 $0.80 $0.80 Other deductions $0.20 $0.20 $0.20 $0.20 Income before taxes $6.85 $7.16 $7.73 $8.33 Taxes $2.74 $2.86 $3.09 $3.33 Net Income $4.11 $4.29 $4.64 $5.00 Add: Depreciation expense $2.10 $2.10 $2.10 $2.10 Cash Flow (EBTDA) $6.21 $6.39 $6.74 $7.10 Less: Retention for Growth $1.24 $1.28 $1.35 $1.42

Terminal Value

Working CapitalAccounts Receivable $8.27 $8.55 $9.06 $9.61 Accounts payable $2.07 $2.14 $2.27 $2.40 Inventories $18.61 $19.24 $20.40 $21.62

Change in Working CapitalChange in Accounts Receivable $0.27 $0.28 $0.51 $0.54

Cost of equity, Ke

Selling, general and administrative expenses

Page 3: Cooper Workings

Change in Accounts payable $0.07 $0.07 $0.13 $0.14 Change in Inventories $0.61 $0.63 $1.15 $1.22 Change in Net Working Capital $0.95 $0.98 $1.80 $1.90

Capital ExpenditureNet Plant and Equipment $16.54 $17.10 $18.13 $19.22 Change in Capital Expenditure $0.54 $0.56 $1.03 $1.09

Add: CF + Terminal Value - Change in Net Working Capital - Chage in Capital ExpenditureNet Cash Flow to Cooper $3.47 $3.57 $2.57 $2.69

Present Value of Cash Flow $66.89 millionLoan amount $12.00 Cashflow to stockholders $54.89 millionNumber of shares outstanding 584000Earnings per share $93.99

Current Market price of stock $44 Number of shares outstanding 584000value to stockholders $25.70 million

1.8 sharesPorter 177000 318600Nicholson 117000 210600VLN 14000 25200

Upper bound

Lower bound

Page 4: Cooper Workings

Condensed Operating and Stockholder Information, Nicholson File Company, 967 - 1971 (millions of dollars except per-share data)1971

$55.3 $37.9

$12.3 $2.1 $0.8 $0.2

$2.02 $0.67 $1.35

23-32

82

1816

41231

$55.3 1.10%3.39%

6% (given)

Page 5: Cooper Workings

$12.0 $0.8

6.67% Kd = interest/long-term debt

27.5 Average share price in 19711.66% (given)

11.82%

0.340.6640%

9.16%

Input Details1976 Comments Input value

$70.41 $45.76 Reduces from 69% to 65% of sales 65%$24.64

$13.38 Reduces from 22% to 19% of sales 19%$2.10 Same trend since 1971$0.80 Assumed no new loans taken$0.20 Same trend since 1971$8.96 $3.59 Tax at 40% 40%$5.38 $2.10 $7.48 $1.50 Retention Ratio 20%

$85.27 After 1976, CF is expected to grow @ 2%

$10.19 A/R to Sales Ratio in 1971 14%$2.55 A/P to Sales Ratio in 1971 4%

$22.92 Inventories to Sales Ratio in 1971 33%

$0.58

ke = d/p) + g

Page 6: Cooper Workings

$0.14 $1.30 $2.02

$20.37 Net PPE to sales Ratio in 1971 29% Note: For change in capex we should consider: Gross fixed assets, accummulated depreciation and net fixed assets$1.15

$88.09

Page 7: Cooper Workings

Note: For change in capex we should consider: Gross fixed assets, accummulated depreciation and net fixed assets

Page 8: Cooper Workings

Condensed Operating and Stockholder Information, Nicholson File Company, 967 - 1971 (millions of dollars except per-share data)1967 1968 1969 1970

OperationsNet Sales $48.5 $49.1 $53.7 $54.7 Cost of goods sold

Depreciation expenseInterest expenseOther deductionsIncome before taxesTaxesNet Income

Percentage of SalesCost of goods sold

Income before taxes

Stockholder InformationEarnings per shareDividends per shareBook value per shareMarket pricePrice/earnings ratio

From Balance SheetAccounts receivablesAccounts payableInventoriesNet plant and equipmentCurrent LiabiliitesLong term DebtCommon Stock

Step 1: Find Average Sales Growth

Net Sales $48.5 $49.1 $53.7 $54.7 Growth 1.24% 9.37% 1.86%Average Sales Growth

Step 2: Find Industry GrowthIndustry Growth

Selling, general and administrative expenses

Selling genereal and administrative expenses

Page 9: Cooper Workings

Step 3: Find Cost of DebtLong Term DebtInterest ExpenseCost of Debt

Step 4: Find Cost of EquityMarket price per share, pDividend per share, dGrowth rate, g

Step 4: Find WACCWeight of DebtWeight of EquityTax RateWACC

Step 5:

1972 1973 1974 1975Net Sales $57.18 $59.11 $62.66 $66.42 Cost of Goods Sold $37.16 $38.42 $40.73 $43.17 Gross Profit $20.01 $20.69 $21.93 $23.25

$10.86 $11.23 $11.91 $12.62 Less: Depreciation expense $2.10 $2.10 $2.10 $2.10 Interest expense $0.80 $0.80 $0.80 $0.80 Other deductions $0.20 $0.20 $0.20 $0.20 Income before taxes $6.85 $7.16 $7.73 $8.33 Taxes $2.74 $2.86 $3.09 $3.33 Net Income $4.11 $4.29 $4.64 $5.00 Add: Depreciation expense $2.10 $2.10 $2.10 $2.10 Cash Flow $6.21 $6.39 $6.74 $7.10 Less: Retention for Growth $1.24 $1.28 $1.35 $1.42

Terminal Value

Working CapitalAccounts Receivable $8.27 $8.55 $9.06 $9.61 Accounts payable $2.07 $2.14 $2.27 $2.40 Inventories $18.61 $19.24 $20.40 $21.62

Change in Working CapitalChange in Accounts Receivable $0.27 $0.28 $0.51 $0.54

Cost of equity, Ke

Selling, general and administrative expenses

Page 10: Cooper Workings

Change in Accounts payable $0.07 $0.07 $0.13 $0.14 Change in Inventories $0.61 $0.63 $1.15 $1.22 Change in Net Working Capital $0.95 $0.98 $1.80 $1.90

Capital ExpenditureNet Plant and Equipment $16.54 $17.10 $18.13 $19.22 Change in Capital Expenditure $0.54 $0.56 $1.03 $1.09

Add: CF + Terminal Value - Change in Net Working Capital - Chage in Capital ExpenditureNet Cash Flow to Cooper $3.47 $3.57 $2.57 $2.69

Present Value of Cash Flow $66.89 millionLoan amount $12.00 Cashflow to stockholders $54.89 millionNumber of shares outstanding 584000Value per share $93.99

Current Market price of stock $44 Number of shares outstanding 584000Cashflow to stockholders $25.70 million

Upper bound

Lower bound

Page 11: Cooper Workings

Condensed Operating and Stockholder Information, Nicholson File Company, 967 - 1971 (millions of dollars except per-share data)1971

$55.3 $37.9

$12.3 $2.1 $0.8 $0.2

$2.02 $0.67 $1.35

23-32

82

1816

41231

$55.3 1.10%3.39%

6% (given)

Page 12: Cooper Workings

$12.0 $0.8

6.67% Kd = interest/long-term debt

27.5 Average share price in 19711.66% (given)

11.82%

0.340.6640%

9.16%

Input Details1976 Comments Input value

$70.41 $45.76 Reduces from 69% to 65% of sales 65%$24.64

$13.38 Reduces from 22% to 19% of sales 19%$2.10 Same trend since 1971$0.80 Assumed no new loans taken$0.20 Same trend since 1971$8.96 $3.59 Tax at 40% 40%$5.38 $2.10 $7.48 $1.50 Retention Ratio 20%

$85.27 After 1976, CF is expected to grow @ 2%

$10.19 A/R to Sales Ratio in 1971 14%$2.55 A/P to Sales Ratio in 1971 4%

$22.92 Inventories to Sales Ratio in 1971 33%

$0.58

ke = d/p) + g

Page 13: Cooper Workings

$0.14 $1.30 $2.02

$20.37 Net PPE to sales Ratio in 1971 29%$1.15

$88.09