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    Numerical Valuation Part 1

    Uploaded by

    Naresh
    The document contains 5 questions related to calculating free cash flow and valuing a firm. Question 1 provides cash flow projections for a company over 3 years and asks to calculate the firm value using a 10% cost of capital. Question 2 modifies the assumptions in Question 1 to perpetual growth of either the Year 3 cash flow level or a 0.9% annual growth rate. Question 3 provides financial statement figures and asks to calculate free cash flow. Question 4 gives projections for sales, margins, investments, taxes and other figures to calculate the value of equity. Question 5 provides income statement and additional information for Butler Co and asks to forecast free cash flows to equity to value the company's equity per share.

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    Numerical Valuation Part 1

    Uploaded by

    Naresh
    97 views3 pages
    The document contains 5 questions related to calculating free cash flow and valuing a firm. Question 1 provides cash flow projections for a company over 3 years and asks to calculate the firm value using a 10% cost of capital. Question 2 modifies the assumptions in Question 1 to perpetual growth of either the Year 3 cash flow level or a 0.9% annual growth rate. Question 3 provides financial statement figures and asks to calculate free cash flow. Question 4 gives projections for sales, margins, investments, taxes and other figures to calculate the value of equity. Question 5 provides income statement and additional information for Butler Co and asks to forecast free cash flows to equity to value the company's equity per share.

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    M & A Numerical

    Original Title

    Numerical valuation Part 1

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    The document contains 5 questions related to calculating free cash flow and valuing a firm. Question 1 provides cash flow projections for a company over 3 years and asks to calculate the firm value using a 10% cost of capital. Question 2 modifies the assumptions in Question 1 to perpetual growth of either the Year 3 cash flow level or a 0.9% annual growth rate. Question 3 provides financial statement figures and asks to calculate free cash flow. Question 4 gives projections for sales, margins, investments, taxes and other figures to calculate the value of equity. Question 5 provides income statement and additional information for Butler Co and asks to forecast free cash flows to equity to value the company's equity per share.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    97 views3 pages

    Numerical Valuation Part 1

    Uploaded by

    Naresh
    The document contains 5 questions related to calculating free cash flow and valuing a firm. Question 1 provides cash flow projections for a company over 3 years and asks to calculate the firm value using a 10% cost of capital. Question 2 modifies the assumptions in Question 1 to perpetual growth of either the Year 3 cash flow level or a 0.9% annual growth rate. Question 3 provides financial statement figures and asks to calculate free cash flow. Question 4 gives projections for sales, margins, investments, taxes and other figures to calculate the value of equity. Question 5 provides income statement and additional information for Butler Co and asks to forecast free cash flows to equity to value the company's equity per share.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 3

    Question no.

    1:
    A company prepares a forecast of future free cash flow at the end of each year. A period
    of 15 years is used as this is thought to represent the typical time horizon of investors in
    this industry.
    It is assumed that the planning horizon is three years – i.e. returns are likely to grow each
    year for the first three years after which they will reach a steady state.
    The following data is available:
    Free cash flows are expected to be $2.5 million in the first year, $4.5 million in the second
    year and $6.5 million in year 3. The company’s cost of capital is 10%.
    Calculate the value of firm.
    Question no. 2:
    The company in the previous illustration now believes that earnings after the planning
    horizon will:
    (a) continue at the year 3 level into perpetuity or
    (b) grow at 0.9% pa into perpetuity.
    Calculate the value of firm.
    Question no. 3:
    Calculate the free cash flow based on the following figures:

    $000
    Operating profit 300
    Depreciation 120
    Increase in working capital 50
    Capital expenditure to replace existing assets 10
    Capital expenditure on new investments 15
    Tax paid 140

    Question no. 4:
    A company is preparing a free cash flow forecast in order to calculate the value of equity.
    The following information is available:
    Sales: Current sales are $500m. Growth is expected to be 8% in year 1, falling by 2% pa
    (e.g. to 6% in year 2) until sales level out in year 5 where they are expected to remain
    constant in perpetuity.
    The operating profit margin will be 10% for the first two years and 12% thereafter.
    Depreciation in year 1 will be $7m increasing by $1 m pa over the planning horizon before
    levelling off and replacement asset investment is assumed to equal depreciation.
    Incremental investment in assets is expected to be 8% of the increase in sales in year 1,
    6% of the increase in sales in each of the following two years, and 4% of the increase in
    year 4.
    Tax will be charged at 30% pa. The WACC is 15%.The market value of short-term
    investments is $4m.
    Required:
    Calculate the value of equity.
    Question no. 5:
    Chassagne Co is considering making a bid for Butler Co, a rival company.
    The following information should be used to value Butler Co.

    Statement of profit or loss for the most recent accounting period

    Other information
     Selling prices are expected to rise at 3% p.a. for the next 3 years and then stay
    constant thereafter.
     Sales volumes are expected to rise at 5% p.a. for the next 3 years and then stay
    constant thereafter.
     Assume that cost of sales is a completely variable cost, and that other operating
    expenses (including depreciation) are expected to stay constant.
     Butler Co invested $15m in non-current assets and $2m in working capital last
    year. These annual amounts are expected to stay constant in future.
     Butler Co's financing costs are expected to stay constant each year in the future.
     The marginal rate of tax is 28%, payable in the year in which
    the liability arises.
     Assume that book depreciation equals tax depreciation.
     Butler Co has 500 million shares in issue.
     The WACC of Butler Co is 9% and its cost of equity is 12%.
    Required:
    Calculate the value of the equity in Butler Co (in total and per share) by forecasting
    future free cash flow to equity and discounting to present value using the cost of equity.

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