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You've noticed that due to Covid-19 the soap & cleaning manufacturing industry in Canada has experienced a huge growth, so you and your friend have decided to start a new business in this industry. You've collected the information provided below to make a feasibility analysis of the new business:
Industry Sales Forecast
YEAR
2021
2022
2023
2024
2025
Total Market (in $ thousands)
1,880,000
1,890,000
1,920,000
1,940,000
1,950,000
Your business market share
0.10%
0.11%
0.12%
0.14%
0.20%
Industry Cost Structure
% of sales
COGS
55%
Depreciation
4%
Sales & Marketing Exp.
7%
Administrative Exp.
13%
Considering the following assumptions:
- your business will be able to have the same cost structure as the industry since its first year of operations
- there are no pre-operational losses to be carried forward.
- the tax rate is 28%.
- the business is 100% equity financed.
- the required return on equity (rE) is 18%
- the long-term growth rate is estimated to be 3% (growth after year 5)
- the investment in net working capital and capital expenditures is expected to be as follows:
2020
NWC (in $ thousands)
150
20
40
120
CAPEX (in $ thousands)
300
200
What is the value of the company using the DCF method (PV of FCFs)? (your answer should be in $ thousands).
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