Produce a DCF for Power Plant LLC

Reference no: EM133373598 , Length: word count:300

Project - Financial Analysis

Instructions

The project will teach you how to perform a financial analysis on a set of financials. A financial analysis report is constructed by a person who is researching a company, usually with the intent of recommending its stock to investors or to a board of directors. The report contains multiple components, such as company overview, investment essentials, valuation, risk analysis, and a summary. However, for the purpose of this class, we will focus on the investment essentials. In this component - "investment essentials", you will need to analyze the financials by using ratio analysis, trend analysis, and provide a quick summary of your findings.

Background:
Power Plant LLC (PPL) includes 36 hectares of land to build up to 100,000 square meters of manufacturing buildings, a data center and other infrastructure necessary to support the manufacturing business.

While the power plant is the main driver of revenues, the manufacturing facilities brings additional benefits to PPL and the Port such as:

• Additional container volume to an adjacent Port
• Manufacturing clients will be consumers of power
• Provides substantial employment, which elevates importance of the entire project and will help the country employment rate. This growth in the container market will be an important driver in shipping lines' decision to come to Port.

Many companies have visited Power Plant LLC including U.S., Asian, Dominican and local manufacturers. At this stage the site only includes some basic earth work and outline of where individual buildings would be constructed. Currently, demand for manufacturing space exceeds available supply.

Status of The project

The total construction CAPEX for the project is $10 million dollars USD and OPEX during Construction is $2.6 million USD. The project is 47% completed. PPL's current cash balance at the bank is $345,041.91, therefore another disbursement from the bank is needed.

Request

Power Plant LLC has raised the equivalent of $15mm. The money was raised from 3 banks: Sogebank ($5mm), BUH ($5mm) and BNC ($5mm).

Reporting Requirements
Power Plant LLC has met all the reporting requirements under the agreements with the banks. Power Plant LLC delivered the following documents to the bank:
- Construction Progress report from third party consultant
- Construction Budget
- Expense Report
The bank is asking that a formal request is sent before approving the next tranche/ disbursement.

Risks:
If the board of director rejects this request, Power Plant LLC will run out of cash. This will delay the project which is under a very strict schedule. PPL will not be able to pay supplier and cover operating expenses.

Alternatives
Should the board decide to reject this request, PPL will need to go to the shareholders for an injection of capital for construction purposes, and also to cover operating expenses.

Exit strategy if business case fails:
If Power Plant LLC fails, the banks will use the collateral assigned to service the loan. PPL pledged 3 lots to each bank (BUH, Sogebank, BNC).

Recommendation:
Power Plant LLC strongly recommends the board to urgently approve this request in order to continue construction and to meet deadlines per the construction schedule.

Financials - See Excel File under Module 4

The financial and projections are provided. You will need to calculate unlevered free cash flow and produce a DCF for Power Plant LLC. The shareholders would like to know the value of Power Plant LLC prior to the board meeting. You are to calculate the Discounted Cash flow using the following additional information:

• The risk-free rate is 5.5%
• The beta is 2.2
• The market risk premium is 8.7%
• The average exit multiple for deals similar to Power Plant LLC is 8.0x

You are also asked to create an amortization schedule for the 3 loans from each bank. Each bank provides $5 million in funding, with an interest rate of 9% per annum. The banks have agreed to provide Power Plant LLC a 2-year grace period on the principal. This scenario is different than what is reported on the financial statements, you do not need to change the financial statements, however you need to present your findings.

Attachment:- CASE - Investment Decisions.rar

Reference no: EM133373598

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