Use the Table for the Question(s) Below -Banco Industries Expect Sales to Grow at a Rapid Rate

question 31

Multiple Choice

Use the table for the question(s) below.
$\begin{array}{l}\text { FCF Forecast (\$ million) }\\\begin{array} { l l l l l l } \text { Year } & \mathbf { 0 } & \mathbf { 1 } & \mathbf { 2 } & \mathbf { 3 } & \mathbf { 4 } \\\text { Sales } & 240 & 270 & 290 & 310 & 325.5 \\\text { Growth versus Prior Year } & & 12.5 \% & 7.4 \% & 6.9 \% & 5.0 \% \\\text { EBIT (10\% of Sales) } & &27.00 & 29.00 & 31.00 & 32.55 \\\text { Less: Income Tax (37\%) } && ( 9.99 ) & 10.73 & 11.47 & 12.44 \\\text { Less: Inc. in NWC (12\% of Change in Sales) } && 3.6 & 2.4 & 2.4 & 1.86 \\\hline \text { Free Cash Flow } && 13.41 & 15.87 & 17.13 & 18.65\end{array}\end{array}$
-Banco Industries expect sales to grow at a rapid rate over the next 3 years, but settle to an industry growth rate of 5% in year 4. The spreadsheet above shows a simplified pro forma for Banco Industries. Banco Industries has a weighted average cost of capital of 12%, $50 million in cash, $60 million in debt, and 18 million shares outstanding. If Banco Industries can reduce their operating expenses so that EBIT becomes 12% of sales, by how much will their share price increase?

• A) $4.98
• B) $8.89
• C) $3.36
• D) $2.81

---

Definitions:

Full Potential

The highest or greatest level of performance, achievement, or utilization that an individual or entity is capable of reaching, often requiring the development of skills, talents, and abilities.

Self-Actualization

The realization or fulfilment of one's talents and potentialities, often considered as the drive to realize personal potential and self-fulfilment.

Unconditional Positive Regard

An attitude of acceptance and support towards another, regardless of what the person says or does.

Genuineness

The quality of being authentic and sincere in one's interactions, oftentimes considered an important trait in therapeutic contexts.