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:

Customized Golf Carts

Customized golf carts refer to golf carts that have been personalized or modified according to the owner's preferences, often involving enhancements in design, functionality, or performance.

Break-even Analysis

A financial calculation to determine the point at which revenue received equals the costs associated with receiving the revenue, indicating no net loss or gain.

Fixed Cost

Expenses that do not change with the amount of goods or services produced, such as rent, salaries, and insurance premiums.

Variable Cost

Expenses that change in proportion to the activity of a business, such as costs for raw materials or production output.