XYZ Inc.
Income Statement

| | 2019A | 2020A | 2021A |
|---------------------|-------|-------|-------|
| Sales Volume (000's units) | 326.4 | 326.6 | 344.5 |
| Unit Price (CDN$/unit) | 654.0 | 707.9 | 594.4 |
| Revenue (C$ MM) | 213.5 | 231.2 | 204.8 |
| Variable Cost (C$ MM) | 95.0 | 97.4 | 100.9 |
| Fixed Cost (C$ MM) | 65.0 | 65.0 | 67.0 |
| S,G & A (C$ MM) | 3.4 | 3.6 | 3.8 |
| Total Costs (C$ MM) | 163.4 | 166.0 | 171.7 |
| EBITDA (C$ MM) | 50.1 | 65.2 | 33.1 |
| Depreciation (C$ MM) | 15.4 | 15.5 | 15.8 |
| EBIT (C$ MM) | 34.7 | 49.7 | 17.3 |
| Interest Expense (C$ MM) | 15.0 | 15.0 | 14.0 |
| EBT (C$ MM) | 19.7 | 34.7 | 3.3 |
| Total Income Taxes (C$ MM) | 5.7 | 14.2 | 1.1 |
| Net Income (C$ MM) | $14.0 | $20.5 | $2.2 |
| Average Diluted Shares O/S (MM's) | 13.9 | 14.2 | 14.6 |
| Earnings per Share (C$ / share) | $1.01 | $1.44 | $0.15 |

Questions:

1. What is the company's expected share price? Consider the following assumptions:
- The required rate of return is 10%, and the TV growth rate is 3%.
- The expected tax rate is 36%.
- The company's current outstanding long-term debt is $300 million at a 5% interest rate, and it is expected to remain the same in the coming years.
- The company's sales volume is expected to grow by 10% in 2022 and 2023, and by 5% in the following three years.
- The company's sales price is expected to grow by the inflation rate (expected at 2%).
- The expected capex is $10 million annually over the next 5 years and is depreciated at a rate of 10%.
- The variable cost margin is expected to be 45% over the next 5 years.
- The expected change in net working capital is 10% of sales (usage).

2. Calculate the company's breakeven point in terms of EBIT for 2021.

3. Create an upside case scenario and a downside case scenario by changing the expected sales volume by 5% and the unit price by 1%.

4. Calculate the company's EBITDA sensitivity for each scenario.

By plugging in the values for the percentage change in sales volume and unit price, we can calculate the EBITDA sensitivity for each scenario.

1. To calculate the expected share price of XYZ Inc., we need to use the dividend discount model (DDM). The DDM formula is as follows:

Expected Share Price = Dividends per Share / (Required Rate of Return - Dividend Growth Rate)

In this case, the dividends per share can be calculated by multiplying the earnings per share (EPS) by the payout ratio. The payout ratio is calculated by dividing the dividends by the net income.

The dividend growth rate can be estimated using the sustainable growth rate formula:

Dividend Growth Rate = Retention Ratio * Return on Equity

The retention ratio is calculated by subtracting the dividend payout ratio from 1.

By plugging in the given assumptions and using the formulas, we can calculate the expected share price for XYZ Inc.

2. To calculate the breakeven point to EBIT in 2021, we need to find the level of sales at which the company's EBIT is zero. The breakeven point can be calculated using the following formula:

Breakeven Point = Fixed Costs / (1 - (Variable Costs / Revenue))

By substituting the given values for fixed costs, variable costs, and revenue, we can calculate the breakeven point in 2021.

3. To create an upside case scenario, we need to increase the expected sales volume by 5% and the unit price by 1%. This will result in higher revenue and potentially higher EBITDA.

To create a downside case scenario, we need to decrease the expected sales volume by 5% and the unit price by 1%. This will result in lower revenue and potentially lower EBITDA.

By plugging in the new values into the formulas, we can calculate the EBITDA for each scenario.

4. To calculate the EBITDA sensitivity for each scenario, we need to calculate the percentage change in EBITDA for a given percentage change in sales volume or unit price. This can be done by dividing the change in EBITDA by the change in sales volume or unit price, and then multiplying by 100 to get the percentage change.
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