Firm Valuation Question

8/9/2019 Firm Valuation Question

1/23

For the valuation of a Company from its Income Statement and Balance Sheet, what we ne

Assets 2008 2009

Cash and marketable securities 11492

Short Term Investment 962Accounts receivable 6130

Notes Receivable 15

Other Receivable 2917

Inventories 8490

Prepaid Expense 12

Other Current Assets 36

Total current assets 30054

Gross plant and equipment 7162 7408

Accumulated Depriciation 4881 5073

Net plant and equipment 2281 2335Loan Receivable ,LT 54

Deffered Tax Asset, LT 280 180

Other Long Term Asset 16 19

Total assets 32642

Liabilities and equity

Accounts payable 16484

Accrued Expense 1042

Current Income Tax Payable 1690

Other current liabilities 442Total current liabilities 19658

Pension and Other Benefits, LT 237

Total Liability 19895

Common stock 666

Retained earnings 12066

Comprehensive Income and Other 15

Total common equity 12747

Total liabilities and equity 32642

Revenues 80894 91,327

CGS 75895 85,121

GP 4999 6,206

Selling and Admin Expense 645 628

Other Operating Expense -419 273

Operating Income (EBIT) 4772 5305

Additional Information:


2/23

1- The company is expecting to grow its sales to grow 25% in first year, 15% in second year and 4% there after.

2- Long term Government bond is trading at 11%.

4- Last year EPS is 10.5

Required

Estimate Future Free Cash Flow

Value of Operation and Value of Entreprise.Find out market price per share.

3-Market risk premiun and market risk is 4% and 1.5 respectively.


3/23


4/23


5/23

iabiltiy for calculating NOWC, Balance Sheet Fixed Asset to calculate NCE and Long Term L


6/23


7/23

iability side for valuing the firm.


8/23


9/23

We will use % of Sale method to project future values, Remenber that Current Asset and

Fixed assets are projected with historical method. Non operating activities will not be proj

Assets % 2008 2009 2010 2011

Cash and marketable securities 12.583 11492 14,365 16,520

Short Term Investment 962 962 962

Accounts receivable 6.712 6130 7,663 8,812Notes Receivable 0.016 15 19 22

Other Receivable 3.194 2917 3,646 4,193

Inventories 9.296 8490 10,613 12,204

Prepaid Expense 0.013 12 15 17

Other Current Assets 0.039 36 45 52

Total current assets 30054 37,327 42,782

Gross plant and equipment 7162 7408 7,662 7,926

Accumulated Depriciation 4881 5073 5,272 5,479

Net plant and equipment 102.37 2281 2335 2,390 2,447

Loan Receivable ,LT 54 54 54Deffered Tax Asset, LT 0.2 280 180 116 74

Other Long Term Asset 0.02 16 19 23 27

Total assets 32642 39,910 45,384

Liabilities and equity

Accounts payable 18.05 16484 20605 23,696

Accrued Expense 1.14 1042 1,303 1,498

Current Income Tax Payable 1.85 1690 2,113 2,429

Other current liabilities 0.48 442 553 635

Total current liabilities 19658 24,573 28,258Pension and Other Benefits, LT 237 237 237

Total Liability 19895 24,810 28,495

Common stock 666 666 666

Retained earnings 12066 12066 12066

Comprehensive Income and Other 15 15 15

Total common equity 12747 12,747 12,747

Total liabilities and equity 32642 37,557 41,242

Revenues 91,327 114,159 131,283

CGS 93.20 85,121 106,401 122,361

GP 6,206 7,758 8,921

Selling and Admin Expense 0.69 628 785 903

Other Operating Expense 0.30 273 341 392

Operating Income 5305 6,631 7626


10/23

To calculate NOPAT we will use the formula EBIT(1-t), where t is the tax rate. We can assume tax rate to be 40% or 35% o

NOPAT= EBIT(1-t) 3,183 3,979 4,576

NOWC calculation: Operating Current asset - Operating Current Liability ( I repeat OPERA

NOWC 9434 11,793 13,561

TO calculate NCE we will add up all the operating fixed assets. Net PP&E, Deffered Tax an

NCE 2534 2,529 2,548

Simply subtract new from old value.

change in NOWC 2,359 1,769

change in NCE (5) 19

FCF= NOPAT +- change in NOWC +- change in NCE

If the change is positive we will substract it from NOPAT and vice versa.

FCF 1,626 2,787


11/23

urrent Liabilities are always projected with % of Sale method.

ected but written as it is.

2012

17,181

962 non operating

9,16422

4,361

12,693

18

54

44,455

8,198

5,693

2,505

54 non operating48

32

47,093

24,644

1,558

2,527

661

29,389237

29,626

666

12066

15

12,747

42,373

136,534

127,256

9,278

939

408

7931


12/23

r we will find it by (Income tax expense/operating income*100) formula. Here we will assume tax rate to be 40%.

4,759

ING)

14,104

d Other Long Term Asset in this case.

2,584

542

36

4,180


13/23

To calculate NOPAT we will use the formula EBIT(1-t), where t is the tax rate. We can assu

NOPAT= EBIT(1-t) 3183.02 3978.78 4575.59 4758.62

NOWC calculation: Operating Current asset - Operating Current Liability ( I repeat OPERATI

NOWC 9434 11792.5 13561.38 14103.83

TO calculate NCE we will add up all the operating fixed assets. Net PP&E, Deffered Tax an

NCE 2534 2528.56 2548.05 2584.43

Simply subtract new from old value.

change in NOWC 2,359 1,769 542

change in NCE (5) 19 36

FCF= NOPAT +- change in NOWC +- change in NCE

If the change is positive we will substract it from NOPAT and vice versa.FCF 1625.72 2787.23 4179.78


14/23

e tax rate to be 40% or 35% or we will find it by (Income tax expense/operating income*

ING)

Other Long Term Asset in this case.


15/23

00) formula. Here we will assume tax rate to be 40%.


16/23

TO find WACC we need following Parameters from Balance Sheet

We Wd Wpre

Ke Kd Kpre

Tax

Total Capital= Equity + Debt = (Common Stock + Retained Earning + Comprehinsive Inco

In this case company do not have debt in its capital structure.

= 666 + 12066 + 14

= 12745

We = total Equity / Total Capital*100

= 12745/12745*100= 100%

Wd = Total Debt / Total Capital *100

= 0/12745 * 100

= 0%

Ke = Risk Free Rate + Martet Risk Premium * Market Risk ( Beta)

= 11 % + 4% * 1.5

= 17%

Kd = 0

To find cost of debt we divide interest expense by by total debt but in this particular probl

Kpre = 0

Wpre= 0

Company did not have prefered stock in its capital structure.

So, the WACC will be

WACC = Kd*Ke (1-t) + Ke * Kd + Kpre * Wpre

= 0 + 17 % + 0


17/23

= 17%

the WACC of the company is 17%


18/23

me nd Other) + Debt

m we do not have debt so its cost will be zero.


19/23


20/23

Now we will move to next step which is firm valuation.

Value of the firm has two components

1- Value of Operations

2- Value of Non-Operations

1- Value of Operations

where terminal value =

Now value of the operations

= 26913

Value of the firm = Value of operating activities + Value of non operating activities

= 26913+(962+54)

= 27929

Market Value of Equity = Value of firm + Value of Debt


21/23

= 27929 + 0

= 27692

Market Price Per Share = MVE/No. of Shares

= 27962/500

= 60


22/23

= 33438

- any long term non operating liability


23/23

- 237 (pension)

Documents

Firm Valuation Question