Your employer a mid-sized human resources management


Your employer, a mid-sized human resources management company, is considering expansion into related fields, including the acquisition of Temp Force Company, an employment agency that supplies word processor operators and computer programmers to businesses with temporary heavy workloads. your employer is also considering the purchase of Biggerstaff & McDonald, a privately held company owned by two friends, each with 5 million shares of stock. B&M currently has free cash flow of 24 million, which is expected to grow at a constant rate of 5%. B&M's financial statements report short-term investments of $100 million, debt of $200 Million, and preferred stock of 50 million. B&M's weighted average cost of capital is 11%. your employer also is considering the acquisition of hatfield medical supplies. you have gathered the following date with dollars reported in millions: 1) sales of 2,000 2) total net operating capital, OpCap=$1,120 3) operating profitability ratio OP=NOPAT/sales=56%. you estimate that thegrowth rate in sales from year 0 to year1 will be 10%. from Year 1 to year 2 will be 8%, from year 2 to year 3 will be 5%, and year 3 to year 4 will be 5%. you also estimate that the long term growth rate beyond year 4 will be 5%. assume the operating profitability and capital requirement ratios will not change. use this information to forecast hatfield's sales, net operating profit after texes, OpCap, free cash flow, and return on invested capital for Years 1 through 4. also estimate the annual growth in free cash flow for years 2-4. the weighted average cost of capital is 9%. how does the ROIC in year 4 compare with the WACC?

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Financial Management: Your employer a mid-sized human resources management
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