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Value of equity and sales forecast

2. Quanta, Inc. reported an after-tax profit margin of 3.50%, an asset turnover of 4.00 on net operating assets of $20.0 billion, and net financial obligations of $7.0 billion on January 31, 2000. Analysts expect that the sales of Quanta, Inc. will grow 8% on average in the future. Analysts also expect

a. If the profit margins and turnovers of Quanta, Inc. continue at their 2000 level and its cost of capital is 10%, what is the value of equity?

b. The shares of Quanta, Inc. were traded at a total market capitalization of $145 billion on January 31, 2000. If profit margins and turnovers were to continue at their 2000 level, what sales is the market forecasting for Quanta, Inc. in 2004?

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Please see the attached file.

a. If the profit margins and turnovers of Quanta, Inc. continue at their 2000 level and its cost of capital is 10%, what is the value of equity?

RNOA = PM x ATO = 3.50% x 4.00 = 14.0%
Forecast of Residual Operating Income (ReOI) for 2001 = (0.14 - 0.10) x 20.0
= 0.8 billion
The value of net assets in 2000 = Value in 2000 + Present ...

Solution Summary

The solution explains how to calculate the value of equity the sales forecast for the coming year.

$2.19