Reference no: EM133042284
Question - Elsa Company shared the following prospective financial in a group of private equity investors. You were tasked to compute for the approximate price that should be set if the investor buys out 15% share in Elsa Company.
|
|
2021
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2022
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2023
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2024
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2025
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|
Revenues
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2,250,000
|
2,750,000
|
3,250,000
|
3,500,000
|
4,000,000
|
|
Variable COGS
|
562,500
|
687,500
|
812,500
|
875,000
|
1,000,000
|
|
Fixed COGS
|
750,000
|
750,000
|
750,000
|
750,000
|
750,000
|
|
Gross profit
|
937,500
|
1,312,500
|
1,687,500
|
1,875,000
|
2,250,000
|
|
Variable operating expenses
|
450,000
|
550,000
|
650,000
|
700,000
|
800,000
|
|
Fixed operating expenses
|
200,000
|
200,000
|
200,000
|
200,000
|
200,000
|
|
Operating income
|
287,500
|
562,500
|
837,500
|
975,000
|
1,250,000
|
Other pertinent assumptions can be found below:
Depreciation of P500,000 is included in fixed cost of goods sold while P100,000 of depreciation is charged to fixed operating expenses.
Income tax rate is at 20%.
Elsa Company estimates it needed P200,000 cash on an annual basis to sustain its capital investments.
From 2026 until perpetuity, the company estimates net cash flows to grow at constant rate of 4%.
Elsa Company has debt-to-equity ratio of 1.5. Pre-tax cost of debt is at 4% while cost of equity is at 9%.
Elsa Company has outstanding loans of PhP200,000.
Required -
1. Compute the weighted average of cost of capital of Elsa Company?
2. Compute the net income from 2021 to 2025?
3. Compute the terminal value of Elsa Company?
4. Compute the net cash flow to the firm?
5. Compute the net cash flow to equity?
6. Compute the price to pay to buy 15% share in Elsa Company.