Reference no: EM133306560

Case: Snowflake is looking at another potential acquisition in the biomed field. The vaccine developer, Vac-Med, has projected sales of $225 million next year. Costs (including depreciation) are expected to be 68 percent of sales and depreciation and net investment (PPE and working capital) are expected to be 4 percent and 7 percent of sales, respectively. Sales are expected to grow at 25 percent the following year, with the growth rate declining by 5 percentage points per year until the growth rate reaches 5 percent, where it is expected to then drop to 4 percent the next year and remain there indefinitely. Vac-Med has debt of $165 million outstanding . There are 2.5 million shares of stock outstanding and investors require a return of 14 percent on the company's stock. The corporate tax rate is 23 percent.

You are interested in determining the value of VacMed today. In answering, provide an explicit detailing of the following:

Question 1. What is your estimate of the value of the operating cash flow in T2? Show your answer to one decimal point - For example: 12.4.
Question 2. What is your estimate of the Horizon value at the end of the non-constant growth period? Show your answer to one decimal point - For example: 12.4.

Question 3. Provide your estimate of the Value of Operations at To. Show your answer to one decimal point - For example: 12.4.

Question 4. Estimate the Equity value per share at To. Show your answer to one decimal point - For example: 12.4.

Question 5. What is your estimate of the Equity value if the firm uses a terminal multiple of 10x operating cash flow? Show your answer to one decimal point - For example: 12.4.

Case: Revian, a firm that manufactures electric vehicles, has hired you to estimate a beta, and a required return for its stock. Revian recently went public and lacks a history of stock returns. As such, they believe looking a similar companies can help them estimate a more reliable measure of beta. You have obtained the following equity betas for publicly traded firms that also produce electric vehicles. Because of its contracts with Amazon to purchase 100 million EVs over the next five years, Revian believes it can support a target capital structure weight of 55% debt and 45% equity. In calculating beta, it ignores taxes (ie tax rate = 0) since profitability is not forecast to be achieved for six months.
Information regarding peer industry competitors is shown below.

Question 1...What is your estimate of the Nio Asset beta? Show your answer to two decimal points - For example: 1.00.
Question 2...What is your estimate of the Asset beta that Revian should use in developing an estimate of their equity beta? The company believes a market value weighting is the best approach for
weighting beta. Show your answer to two decimal points - For example: 1.00.
Question 3...What is your estimate of the Equity beta that Revian should use in its project analysis? The company believes a market value weighting is the best approach for weighting beta. Show your
answer to two decimal points - For example: 1.00.
Question 4...At the current time, the 30 year Treasury bond is yielding 3.93% and the Damodaran estimates a market risk premium of 5.6%. What is your estimate of Revian's current required return on equity?

Show your answer to two decimal points. For example: 1.00.