Use the Microsoft Excel Model in a File Folder Entitled

question 49

Essay

Use the Microsoft Excel model in a file folder entitled Target Valuation Model on the companion site to this book to address the following questions. The model already contains data and an estimate of Life Tech’s enterprise and equity valuations based on this data and a set of assumptions about the planning period spanning 2014 through 2018, as well as the years beyond. In answering the following questions, assume the valuation provided in this model represents the firm’s base case and reflects what the firm could do if it continued the business strategy in effect in 2012.
-Note the enterprise and equity valuations for Life Technology in the Excel spreadsheet model entitled Target Valuation Model on the companion website accompanying this book. View this as the base case. The CEO Greg Lucier asks his chief financial officer (CFO) to determine the impact of plausible assumption changes on the firm's valuation. The CFO asks you as a financial analyst to estimate the impact of a change in the firm's revenue growth rate and cost of sales as a percent of sales. On the Target Assumptions Worksheet, make the following changes and note their impact on Life Tech's enterprise and equity values on the Valuation Worksheet:
a. Increase the sales growth rate in 2014 by two percentage points
b. Retaining the assumption change made in (a), decrease the cost of sales as a percent of sales by
two percentage points in 2014
What is Life Tech's enterprise and equity value resulting from these changes? How do they compare to the base case? Briefly explain why each of these changes affects firm value. Do not undo the results of your changes to the model's base case.

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Definitions:

Money Supply Growth

The rate at which the amount of money available in an economy increases over a specific period of time.

Inflation

The rate at which the general level of prices for goods and services is rising, eroding purchasing power over time.

Adverse Supply Shock

An unexpected event that suddenly decreases the supply of a commodity or service, potentially leading to higher prices and lower quantity available.

Money Supply

The aggregate value of all monetary assets in an economy during a specific period.