SECURITY ANALYSIS (MJNF1W12-S1FIN24_5A-JIK-K) Course Materials & Test Answers | lms.prasetiyamulya.ac.id

Gabriella, an equity analyst, is valuing Vivi Farm. She adds a note in Exhibit 1 & 2 for the earning’s normalization.

Exhibit 1

Vivi Farm’s Selected Financial Data for Year Ended 2016
(in million IDR unless otherwise stated)
Gross revenue from crops, livestock, feed, and so on
IDR 2,500,000
Cost of Goods Sold
IDR 1,000,000
Selling, General, & Administrative Expenses
IDR 900,000
Depreciation & Amortization Expenses
IDR 200,000
Tax Rate
25%
Note :
1. Vivi Farm has IDR 750,000 debt outstanding at an interest rate of 8%, and it comprises 30% of total assets on balance sheet. Debt will be a part of acquisition transaction.
2. Vivi Farm holds IDR 200,000 cash and cash equivalent, but it will not be a part of the assets under acquisition transaction.

Exhibit 2

Additional Data & Gaby’s Estimates for Normalization

(in million IDR unless otherwise stated)

1	The cost of goods sold ratio to revenue should be higher, at 45%.
2	SG&A expenses include IDR 400,000 in owners compensation. According to Gaby’s research, owners compensation expense for similar size farm is IDR 200,000
3	A ranch is not required for the farm’s core operations. The reported SG&A expenses include IDR 100,000 for operating expenses related to the property. The ranch will be kept by the current owner and is not a part of the purchase.
4	For pro forma estimations, Gaby will consider depreciation & amortization at 10% of gross revenue.

Using the company’s data and Gabriella’s assessment in Exhibit 1 & 2, Vivi Farm’s normalized net operating profit after tax in million IDR will be……………………

300000

348750

393750

100%

525000

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Exp inflation	6%
Expected Dividend per Share	75
Fair Value of Stock	30000
Reinvestment rate of Dividend	0,02%
Yield on Treasury Bond	4,25%
Expected growth of labor supply	1,50%
Expected growth of labor productivity	0,75%
Beta	1,35
Market Return	7,80%

Net Income	$422 million
Common Stock (par + paid in excess of par)	$ 1,075 million
Retained Earnings	$ 1,078 million
WACC	11.9%
Cost of debt before tax	7%
Cost of equity	15%
Expected growth rate for net income in 2017	14%
After 2017, net income will decline linearly over the 6 years period
Final and perpetual growth rate	5%
Dividend payout ratio	40%
Shares outstanding	150 million

Levered beta for a sector	1.4
Average D/E in the sector	1.25
tax rate	25%
Average degree of operating leverage	0.8

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SECURITY ANALYSIS (MJNF1W12-S1FIN24_5A-JIK-K)

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Gross revenue from crops, livestock, feed, and so on	IDR 2,500,000
Cost of Goods Sold	IDR 1,000,000
Selling, General, & Administrative Expenses	IDR 900,000
Depreciation & Amortization Expenses	IDR 200,000
Tax Rate	25%
Note : 1. Vivi Farm has IDR 750,000 debt outstanding at an interest rate of 8%, and it comprises 30% of total assets on balance sheet. Debt will be a part of acquisition transaction. 2. Vivi Farm holds IDR 200,000 cash and cash equivalent, but it will not be a part of the assets under acquisition transaction.