Use the following assumptions for the Capital Budgeting Model.
- The same store sales growth should be estimated based upon historical movements in same store sales and your assessment of future prospects for Lowe's.
- Cost of Goods Sold should be estimated as a percentage of sales.
- Selling, general, and administrative expenses should be estimated as a percentage of sales.
Depreciation expenses should be estimated as a percentage of sales.
- Tax expense will be estimated as the past year tax expense divided by the past year per-tax earnings.
- Operating Cash Flows will be equal to {(Sales - CGS - SG&A-Dep)*(1-tax rate)}+Dep.
- Additional capital expenditure (needed each year to support the store's capital assets)
is set equal to depreciation expense. The notion is that the company will have to re- invest money into the long-term assets at an amount equal to the depreciation of those assets each year.
- Net Working Capital (NWC) is equal to total current assets less total current liabilities.
- Net Working Capital (NWC) will be estimated as a percentage of sales.
- Additional Net Working Capital (change from year to year in NWC) will be equal to the current year NWC less the past year NWC.
- Free Cash Flows (Asset Cash Flows) will be equal to Operating Cash Flows less additional capital expenditures less additional net working capital.
- The long term growth in Free Cash Flows (Asset Cash Flows) beyond 2009 will be assumed to equal 2% which considers 1% population growth plus 1% inflation.
- V2009 will be estimated as, FCF09*(1+long term growth rate)/(WACC - long term growth rate).
- Weighted Average Cost of Capital (WACC) is set equal to 9.5%, or 0.095 in decimal form.
Attachment:- Assignment.rar