Excel sheet and word document attached. Link formulas/calculations to see breakout.
Rondo 3 – Financial Forecast
Use an 8% annual growth rate for sales
Balance sheet
All assets will grow at the same rate as sales
Liabilities – Accounts payable and accruals will grow at the same rate as sales; use the assumptions in the case re the mortgage bond and the bank loan (note that the bank loan is included in both current and long-term liabilities)
Income statement
Operating expenses (all expenses subtracted to get to EBIT) grow at the same rate as sales
Interest expense – use the interest rates for the bank loan and the mortgage bond as given in the case; apply to the ending debt balances for the prior year to calc the expense for each year
Income tax rate = 25% (not the 40% historical rate for 2017 – 2019)
Other
Use the 2019 dividend payout ratio for all forecast years
Include an AFN reconciliation for each year
Exec summary – please discuss (i) the components/drivers of AFN, and (ii) one potential opportunity Rondo has to internally finance the AFN
Hints
Interest expense
AFN
Rondo 4 – CAPM / required rate of return
Risk free rate = 4.0%
Market risk premium – 2 cases
9.0%
8.0%
Beta – per Rondo case study
Exec summary – please discuss the impact of different market risk premiums on the required rate of return for Rondo’s stock.
Rondo 5 – Dividend payout ratio and yield
For year ended December 31, 2019
Show calculations/answers are clearly shown
discuss (i) the components/drivers of AFN, and (ii) one potential opportunity Rondo has to internally finance the AFN
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