Reference no: EM132260725

Exercise 1

This sheet presents ABC Inc.'s base year (year 0) balance sheet, income statement and assumptions on financial rations/items.

a) Use the data to project the financial statements for year 1.

b) Extend the model to 5 years and calculate free cash flows for each year.

Exercise 2

This sheet contains Donna Company's B/S, I/S and value drivers. Assume that Donna Company pays $6,000 of its debt every year and that the interest rate, paid and earned, is on average debt and cash balance, respectively, and the depreciation is on average fixed assets. Construct a 5-year pro forma model for Donna Company and compute free cash flows.

Assume that the firm's terminal value growth rate is 3% and cost of capital is 15%, find the value of equity. Perform a sensitivity analysis with cost of capital: 10%, 15% and 20%; terminal growth rate: 1%, 3%, and 5%.

Exercise 3

Additional model assumptions:
1. Debt repayments are $300,000 each year
2. Cash is the plug
3. FCF evaluation is for 5-year period. The terminal value is determined using long-term growth rate.

Find the value of the firm using DCF methods and year-end discounting.

A) Show how the company value and its share value change if mid-year discounting is used.

B) Show in a graph the sensitivity of enterprise value (of the year-end discounting) to the sales growth rate.

C) Show in a graph the sensitivity of enterprise value (of the year-end discounting) to WACC.

Attachment:- Exercises.rar