Reference no: EM13371474

PNG Airlines is positioning itself for global expansion. The Chief Executive Officer of the company has asked its Chief Financial Officer to prepare a valuation report based on free cash flow (FCF) projections. The CFO needs your expertise in this matter.

Using discounted PV method, you are required to:

(1) Prepare free cash flow (FCF) projections for the next 10 years.

(2) Determine PNG's terminal value at the end of 10th year.

(3) Based on discounted free cash flows, determine enterprise value, equity value and value per share.

PNG Airlines, Income Statement
Dollars In Millions	2009	2010	2011	2012	2013
Sales (Net)	13,489	14,290	16,191	17,171	19,154
Cost of Goods Sold	12,490	13,814	14,811	14,430	15,315
Gross Profit	999	476	1,380	2,741	3,839
Selling, General, & Admin Expenses	911	939	2,108	1,394	1,579
Operating Income Before Depreciation	88	-463	-728	1,347	2,260
Depreciation, Depletion, & Amortiz	1,230	1,244	1,273	1,276	1,164
Operating Income After Depreciation	-1,142	-1,707	-2,001	71	1,096
Interest Expense	757	824	1,032	870	652
Non-Operating Income/Expense	1,542	-1,461	-826	-6,169	1,375
Special Items	0	0	0	0	0
Pretax Income	-357	-3,992	-3,859	-6,968	1,819
Income Taxes - Total	416	1,206	41	765	207
Minority Interest	0	0	0	0	0
Income Before Extraordinary Items &        Discontinued Operations (EI&DO)	-773	-5,198	-3,818	-6,203	1,612
Extraordinary Items	0	0	-	0	0
Discontinued Operations	0	0	0	0	0
Net Income (Loss)	-773	-5,198	-3,818	-6,203	1,612

PNG Airlines, Balance Sheet
Dollars In Millions	2009	2010	2011	2012	2013
Cash	2,710	1,463	2,008	2,034	2,648
Short-term investment	-	336	-	614	138
Receivables - Trade	662	696	819	915	1,066
Inventories	202	203	172	181	262
Prepaid Expense	476	525	512	489	464
Other Curr.Asst, Excl.Ppd.Exp.	-	383	969	1,152	662
Current Assets - Total	4,050	3,606	4,480	5,385	5,240
Property, Plant & E.- Total (Gross)	26,010	26,149	23,917	22,690	12,309
Deprec.Depl.& Amort.	-1230.00	-1,244.00	-1,273.00	-1,276.00	-1,164.00
Prop.Plant & Equip.- Total (Net)	24,780	24,905	22,644	21,414	11,145
Goodwill Net	2,092	227	227	227	12,104
Invest. & Advances - Other	-	-	-	-	-
Intangibles	-	79	74	89	2,806
Deferred Charges	-	-	-	-	-
Other Asst., Excl.Def.Chg	4,637	1,295	1,022	1,005	811
Total assets	35,559	30,112	28,447	28,120	32,106
Accounts Payable	1,759	-	934	936	1,045
Income Taxes Payable	-	-	-	-	-
Accrued Expense	1,621	1,422	726	670	849
Debt - Due in One Year	1,002	893	1,186	1,503	1,014
Other Curr.Liab., Excl.Accr.Exp	2,242	2,066	2,419	2,660	3,402
Current Liabilities - Total	6,624	4,381	5,265	5,769	6,310
Long-Term Debt - Total	19,582	13,005	6,557	6,509	7,986
Liabilities - Other	-	8,374	17,733	20,531	6,864
Def. Taxes and Invest.Tax Cred.	534	-	132	406	855
Total Liabilities	26,740	25,760	29,687	33,215	22,015
Pref. Stock - Redeemable	275	390	336	-	-
Common Stock	271	286	2	2	-
Paid-in-Capital	3,272	3,052	1,635	1,561	9,512
Retained Earnings	(2,338)	(4,373)	(8,209)	(14,414)	314
Other Equity	-	(2,471)	(2,811)	(518)	435
Treas.Stock - Total $ Amt	(2,708)	(2,403)	(601)	(224)	(148)
Shareholders Equity - Total	(1,228)	(5,519)	(9,648)	(13,593)	10,113
Liabilities and Shrhld. Equity - Total	25,512	20,241	20,039	19,622	32,128
Total Common Shares Outstanding	-	139.83	189.34	197.34	292.23

ASSUMPTIONS & Other Information
	PNG	Average	Industry
Revenue increase	6.50%	7.03%	5.00%
COGS as % of revenue	85%	89.19%	79.53%
Annual decrease of COGS	1.50%
SG & A as % of revenue	9.10%	9.10%	11.04%
Depreciation	5%
Working capital	2.71%	2.71%	Negative
Change in net working capital	3.25%
Growth rate (g)	4%
CAPEX growth	7%	5.01%
Plant Property & Equipment	First year: Gross PPE from B/S + change in CAPEX
	Second year onwards: Previous year's PPE + Current year CAPEX
WACC Caluculation assumptions
Beta	1.95
Risk free rate	10 years treasury bond (^TNX)
Risk premium	6%	Best practice
Target -Equity of 33% and debt 67%
Cost of debt	8.71%
WACC	To be calculated