User Account

All Pages

Evaluate the fcf valuation

Assignment Help Financial Management
Reference no: EM1372310

SCENARIO A





FREE-CASH-FLOW VALUATION OF EQUITY MAKE ENTRIES IN BLUE-COLORED CELLS
Assumptions:





PERIOD 0 1 2 3 4 5
YEAR 2003 2004 2005 2006 2007 2008
Profit from operations (EBIT)
115.0 138.0 165.0 199.0 238.0
Income tax rate
35.0% 35.0% 35.0% 35.0% 35.0%
Depreciation & amortization expense
15.0 16.0 16.0 17.0 17.0
Net working capital from balance sheet forecast 481.0 633.4 760.0 912.0 1094.4 1313.3
Capital expenditures
3.0 3.0 3.0 3.0 2.0
Long-term growth rate




4.0%
Wt-Avg. C of C (K-wacc) 10.8%




Market Value of Debt 57.0




Number of Shares 10.0




Redundant Assets 0.0











PERIOD 0 1 2 3 4 5
YEAR 2003 2004 2005 2006 2007 2008
EBIT after tax (EBIAT)
74.8 89.7 107.3 129.4 154.7
Depreciation   15.0 16.0 16.0 17.0 17.0
Cash Flow from Operations (CFFO)
89.8 105.7 123.3 146.4 171.7
+/- Change in Net Working Capital
152.4 126.7 152.0 182.4 218.9
+/- Capital Expenditures   3.0 3.0 3.0 3.0 2.0
Free Cash Flow (FCF)   (65.6) (24.0) (31.8) (39.1) (49.2)
Terminal Value (TV)           (752.3)
Sum of FCF + TV
(65.6) (24.0) (31.8) (39.1) 843.8







  Present Value 377.3




 Market Value of Debt 57.0
 

 
Valuation of Equity 320.3
 


Redundant assets 0.0




Adjusted Value of Equity 320.3




 Number of Shares 10.0




Value of Equity per Share $32.03




 

SCENARIO B





FREE-CASH-FLOW VALUATION OF EQUITY MAKE ENTRIES IN BLUE-COLORED CELLS
Assumptions:





PERIOD 0 1 2 3 4 5
YEAR 2003 2004 2005 2006 2007 2008
Profit from operations (EBIT)
90.0 95.0 100.0 105.0 109.0
Income tax rate
35.0% 35.0% 35.0% 35.0% 35.0%
Depreciation & amortization expense
15.0 16.0 16.0 17.0 17.0
Net working capital from balance sheet forecast 481.0 498.0 523.0 548.0 576.0 605.0
Capital expenditures
3.0 3.0 3.0 3.0 2.0
Long-term growth rate




2.0%
Wt-Avg. C of C (K-wacc) 10.8%




Market Value of Debt 57.0




Number of Shares 10.0




Redundant Assets 0.0











PERIOD 0 1 2 3 4 5
YEAR 2003 2004 2005 2006 2007 2008
EBIT after tax (EBIAT)
58.5 61.8 65.0 68.3 70.9
+ Depreciation   15.0 16.0 16.0 17.0 17.0
=Cash Flow from Operations (CFFO)
73.5 77.8 81.0 85.3 87.9
+/- Change in Net Working Capital
(17.0) (25.0) (25.0) (28.0) (29.0)
+/- Capital Expenditures   (3.0) (3.0) (3.0) (3.0) (2.0)
=Free Cash Flow (FCF)   53.5 49.8 53.0 54.3 56.9
+Terminal Value (TV)           658.9
=Sum of FCF + TV
53.5 49.8 53.0 54.3 715.8







  Present Value 592.4




- Market Value of Debt 57.0
 

 
= Valuation of Equity 535.4
 


+Redundant assets 0.0




=Adjusted Value of Equity  535.4




/  Number of Shares  10.0 0



Value of Equity per Share $53.54




Q1 Mark Cartwright is trying to sell his business. He asked you, as a GW MBA, to value the business for him, so he can decide how to price it. You ran two scenarios of the forecast, then you ran the FCF VALUATION MODEL for each scenario, A & B above. Reconcile the two scenarios by examining their inputs and outputs, and recommend to Mark how much you think his business is worth. Include a justification based on your analysis and reconcilation of the two scenarios. HINT: How do Scenario A&B assumptions (inputs) differ?

MARKET MULTIPLES (COMPARABLES) VALUATION OF EQUITY MAKE ENTRIES IN BLUE-COLORED CELLS


none none none none Average
Market Multiples of Peers Peer A Peer B Peer C Peer D Peer E Mkt Mult
Price /revenue market multiple of peer company 0.3         0.3
Price/EBITDA market multiple of peer company 12.0         12.0
Price /Earnings market multiple of peer company 14.0         14.0
Mkt Val of Eq/Book Val mkt mult of Equity of peer co 2.4         2.4







Target company data
Target company is Cartwright- the one being valued
Target company revenue 2694.0




Target company EBITDA 86.0 Use EBIT because EBITDA is not given
Target company earnings (net income) 44.0




Target company book value of equity 348.0




Target company number of shares 10.0 Not relevant- no shares outstanding









from col B from Col G  BxC C/B55


Target Co Average Aggregate Per Share  
Valuation Calculations Data Mkt Mult Valuation Valuation  
Valuation based on avg revenue market multiple 2694.0 0.3 808.20 $80.82 See formulas in cells for source of data
Valuation based on avg EBITDA market multiple 86.0 12.0 1032.00 $103.20

Valuation based on avg earnings market multiple 44.0 14.0 616.00 $61.60

Valuation based on avg book value market multiple 348.0 2.4 835.20 $83.52








Summary





   FREE CASH FLOW MODEL SCENARIO A $320,300 from previous tab B32


   FREE CASH FLOW MODEL SCENARIO B $535,400 from previous tab B72


   REVENUE MARKET MULTIPLE $808,200 from E19

 
   EBITDA MARKET MULTIPLE $1,032,000 from E20



   EARNINGS MARKET MULTIPLE $616,000 from E21  


   BOOK VALUE MARKET MULTIPLE $835,200 from E22  









CURRENT MARKET PRICE There is no current market price, this is a small business, its shares are not listed or traded OTC

Q2 After you finished the FCF Valuation (previous tab), you learned of a business similar to Cartwright Lumber that was sold recently to a new owner.

Explain the results of your Market Multiples analysis in the box provided.

Q3 Reconcile the FCF Valuation results with the Market Multiples Valuation results.

Q4  Instead of the FCF Valuation and the Market Multiples Valuation, is it valid to use a simple capitalization formula, such as the formula on page 97 of the Cohen Finance Workbook? Calculate the value of Cartwright using that formula and discuss the implications.

Reference no: EM1372310

Questions Cloud

Calculate the profit maximizing price : General Cereals, (GCI) produces and markets Sweeties!, a popular ready to eat breakfast cereal. In an effort to expand sales in the Secaucus,
What is the net work done on the weights : A charge of -3.55 nC and a charge of -5.65 nC are unconnected by a distance of 60.0 cm. Find the position at which a third charge of +7.20 nC can be located so that the net electrostatic force on it is zero.
What is the change in length of rod : If a drop is to be deflected a distance = 0.28 by the time it reaches the end of the deflection plate, what magnitude of charge should be given to the drop? Imagine that the density of the ink drop is 1000 and ignore the effects of gravity.
Explain bgp in wan between different as : You are using BGP-4 in WAN between AS1, AS2, and AS3. Explain in plain text or as BGP-4 policy statement how you would: Allow AS3 to communicate with AS1 but not allow AS2 to communicate with AS1.
Evaluate the fcf valuation : Explain results of your Market Multiples analysis and reconcile the FCF Valuation results with the Market Multiples Valuation results
How would real wages in this market adjust : Suppose a particular labour market were in market-clearing equilibrium. What could happen to cause equilibrium wage to fall. If all money wages rose with inflation each year, how would real wages in this market adjust.
How far would she travel before the light turns red : A person driving her car at 53.0 km/h approaches an intersection while the traffic light turns yellow. She knows that the yellow light lasts only 2s before turning to red.
What is the distance between the centres of adjacent atoms : When you push a 1.95kg book resting on a tabletop it takes 2.50N to start the book sliding. Once it is sliding, though, it takes only 1.50N to keep the book moving with constant speed. What are the coefficients of static and kinetic friction betwe..
What is total opportunity cost this year of starting shop : Your savings account was earning 3% interest. What are explicit and implicit costs of your decision. What is total opportunity cost this year of starting shop.

Reviews

Write a Review

Financial Management Questions & Answers

  Foreign company acquisition

Acquisition by a foreign company and the effects of that decision and the results of foreign exchange in Euro and the exchange rate differences.

  Financial management for profit and non profit organizations

In this essay, we are going to discuss the issues of financial management in a non-profit organisation.

  Method for estimating a venture''s value

Evaluate venture's present value, cash and surplus cash and basic venture capital.

  Replacement analysis

This document show the Replacement Analysis of modling machine. Is replacement give profit to company or not?

  Business finance task - capital budgeting

Your company is considering using the payback period for capital-budgeting. Discuss the advantages and disadvantages of this technique.

  Analysis of the investment

In this project, you will focus on one of these: the additional cost resulting from the purchase of an apple press (a piece of equipment required to manufacture apple juice).

  Conduct a what-if analysis

Review the readings and media for this unit, including the Anthony's Orchard case study media. Familiarise yourself with the Anthony's Orchard company and its current situation.

  Determine operational expenditures

Organisations' behaviour is guided by financial data. In the short term, such data will help determine operational expenditures; in the long term, historical data may help generate forecasts aimed at determining strategic plans. In both instances.

  Personal financial management

How much will you have left over each half year if you adopt the latter course of action?

  Sources of finance for expansion into new foreign markets

A quoted company is considering several long-term sources of finance for expansion into new foreign markets.

  Long term financial planning

This assignment is designed for analyze Long term financial planning begins with the sales forecast and the key input in the long term fincial planning.

  Explain the role of fincial manager

This assignment explain the role of fincial manager, function of manger. And what are the motives of financial manager.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd