Need help with a corporate evaluation question. (a) Use the financial statements

Question

Need help with a corporate evaluation question.

(a) Use the financial statements given to measure the company's unlevered free cash flows in year 1-4.

(c) Value the firm at the end of year 0 using WACC method

(d) Use the adjusted present value form of the excess earnings valuation method to value the company.

0 1 2 3 4 Amount of debt to issue 11000 Cost of debt issued 11% Revenue growth rate 10% 49.99% 10% 2.80% 2.80% Long term growth (after year 3) 2.80% Unlevered cost of capital 15% Operating margin 60% 60% 60% 60% 60% 60% Cost of debt issued 11% 11% 11% 11% 11% 11% Tax rate 30% 30% 30% 30% 30% 30% INCOME STATEMENT Revenue 7968 8765 13147 14462 14867 15283 Operating expense 3187 3506 5258 5784 5946 6113 Depreciation expense 1000 1273 1875 2226 2494 2557 EBIT 3781 3986 6014 6452 6427 6613 Interest 0 0 1210 1081 884 668 EBT 3781 3986 4804 5370 5543 5945 Taxes 1512 1196 1441 1611 1663 1783 Net income 2269 2790 3362 3759 3880 4161 BALANCE SHEET -1 0 1 2 3 4 Cash 80 88 131 145 148 152 Net working capital 1514 1665 1972 2169 2224 2286 PPE(net) 11686 16433 18076 18528 18992 19476 Total Assets 13280 18186 20179 20842 21364 21914 Debt 0 11000 9831 8034 6076 6265 Common equity 13280 7186 10348 12808 15288 15649 Total L+E 13280 18186 20179 20842 21364 21914 CASH FLOW STATEMENT -1 0 1 2 3 4 Net Income 2790 3362 3759 3880 4161 Depreciation 1273 1875 2226 2494 2557 Change in NWC 151 307 197 55 62 Cash Flow from Operations 3912 4930 5788 6319 6656 Capital expenditures 6020 3518 2678 2958 3040.824 Change in debt 11000 -1169 -1796 -1958 189 Change in equity 0 0 0 0 0 Dividends paid 8884 200 1300 1400 3800 Cash flow from financing 2116 -1369 -3096 -3358 -3611 Change in cash balance 8 43 14 3 4

Explanation / Answer

a.

b.APV=NPV+PV(tax shields)

Year 1 2 3 4 Cash Flow from Operations 4930 5788 6319 6656 ADD:Cash interest paid 200 1300 1400 3800 Less: Interest Tax Shield -1196 -1441 -1611 -1663 less :change in Required Cash -307 -197 -55 -62 Less:Capital Expenditures -3518 -2678 -2958 -3040.82 Unlevered Free Cash Flow 109 2772 3095 5690.176

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