Tiara Wings Ltd is a firm that makes Tiaras and chicken wings. The firm has proj
ID: 2711690 • Letter: T
Question
Tiara Wings Ltd is a firm that makes Tiaras and chicken wings. The firm has projected its future growth in the table below. Assuming this table is correct, compute the value per share. The firm has WACC of 12%, the long-run growth rate after year 5 is 4%. The firm has $5 million in debt and 865,000 shares outstanding.
Latest
Year
Forecast
-1
0
1
2
3
4
5
1.
Sales
39,357.0
40,123.0
36,351.0
30,155.0
28,345.0
29,982.0
30,450.0
2.
Cost of Goods Sold
18,564.0
22,879.0
21,678.0
17,560.0
16,459.0
15,631.0
14,987.0
3.
Other Costs
7,645.0
8,025.0
6,797.0
5,078.0
4,678.0
4,987.0
5,134.0
4.
EBITDA (1 – 2 – 3)
13,148.0
9,219.0
7,876.0
7,517.0
7,208.0
9,364.0
10,329.0
5.
Depreciation and Amortization
5,745.0
5,678.0
5,890.0
5,670.0
5,908.0
6,107.0
5,908.0
6.
EBIT (pretax profit) (4 – 5)
7,403.0
3,541.0
1,986.0
1,847.0
1,300.0
3,257.0
4,421.0
7.
Tax at 35%
2,591.1
1,239.4
695.1
646.5
455.0
1,140.0
1,547.4
8.
Profit after Tax (6 – 7)
4,811.0
2,301.7
1,290.9
1,200.6
845.0
2,117.1
2,873.7
9.
Change in Working Capital
566.0
784.0
-54.0
-342.0
-245.0
127.0
235.0
10.
Investment
(change in gross PP&E)
6,467.0
6,547.0
7,345.0
5,398.0
5,470.0
6,420.0
6,598.0
Latest
Year
Forecast
-1
0
1
2
3
4
5
1.
Sales
39,357.0
40,123.0
36,351.0
30,155.0
28,345.0
29,982.0
30,450.0
2.
Cost of Goods Sold
18,564.0
22,879.0
21,678.0
17,560.0
16,459.0
15,631.0
14,987.0
3.
Other Costs
7,645.0
8,025.0
6,797.0
5,078.0
4,678.0
4,987.0
5,134.0
4.
EBITDA (1 – 2 – 3)
13,148.0
9,219.0
7,876.0
7,517.0
7,208.0
9,364.0
10,329.0
5.
Depreciation and Amortization
5,745.0
5,678.0
5,890.0
5,670.0
5,908.0
6,107.0
5,908.0
6.
EBIT (pretax profit) (4 – 5)
7,403.0
3,541.0
1,986.0
1,847.0
1,300.0
3,257.0
4,421.0
7.
Tax at 35%
2,591.1
1,239.4
695.1
646.5
455.0
1,140.0
1,547.4
8.
Profit after Tax (6 – 7)
4,811.0
2,301.7
1,290.9
1,200.6
845.0
2,117.1
2,873.7
9.
Change in Working Capital
566.0
784.0
-54.0
-342.0
-245.0
127.0
235.0
10.
Investment
(change in gross PP&E)
6,467.0
6,547.0
7,345.0
5,398.0
5,470.0
6,420.0
6,598.0
Explanation / Answer
Answer: Calculation of the value per share:
Latest
year
Forecast
0
1
2
3
4
5
1.
Sales
40,123.0
36,351.0
30,155.0
28,345.0
29,982.0
30,450.0
2.
Cost of Goods Sold
22,879.0
21,678.0
17,560.0
16,459.0
15,631.0
14,987.0
3.
Other Costs
8,025.0
6,797.0
5,078.0
4,678.0
4,987.0
5,134.0
4.
EBITDA (1 – 2 – 3)
9,219.0
7,876.0
7,517.0
7,208.0
9,364.0
10,329.0
5.
Depreciation and Amortization
5,678.0
5,890.0
5,670.0
5,908.0
6,107.0
5,908.0
6.
EBIT (Pretax profit) (4 – 5)
3,541.0
1,986.0
1,847.0
1,300.0
3,257.0
4,421.0
7.
Tax at 35%
1,239.4
695.1
646.5
455.0
1,140.0
1,547.4
8.
Profit after tax (6 – 7)
2,301.7
1,290.9
1,200.6
845.0
2,117.1
2,873.7
9.
Change in working capital
784.0
-54.0
-342.0
-245.0
127.0
235.0
10.
Investment
(change in Gross PP&E)
6,547.0
7,345.0
5,398.0
5,470.0
6,420.0
6,598.0
11.
Free Cash Flow (8 + 5 – 9 – 10)
648.7
-110.1
1,814.6
1,528.0
1,677.1
1,948.7
PV Free cash flow, years 1-4
3,501.6
Horizon value in year 4
PV Horizon value
15,480.0
24,358.1
PV of company
18,981.7
The total value of the equity is: $18,981.7 – $5,000 = $13,981.7
Value per share = $13,981.7/865 = $16.16
Latest
year
Forecast
0
1
2
3
4
5
1.
Sales
40,123.0
36,351.0
30,155.0
28,345.0
29,982.0
30,450.0
2.
Cost of Goods Sold
22,879.0
21,678.0
17,560.0
16,459.0
15,631.0
14,987.0
3.
Other Costs
8,025.0
6,797.0
5,078.0
4,678.0
4,987.0
5,134.0
4.
EBITDA (1 – 2 – 3)
9,219.0
7,876.0
7,517.0
7,208.0
9,364.0
10,329.0
5.
Depreciation and Amortization
5,678.0
5,890.0
5,670.0
5,908.0
6,107.0
5,908.0
6.
EBIT (Pretax profit) (4 – 5)
3,541.0
1,986.0
1,847.0
1,300.0
3,257.0
4,421.0
7.
Tax at 35%
1,239.4
695.1
646.5
455.0
1,140.0
1,547.4
8.
Profit after tax (6 – 7)
2,301.7
1,290.9
1,200.6
845.0
2,117.1
2,873.7
9.
Change in working capital
784.0
-54.0
-342.0
-245.0
127.0
235.0
10.
Investment
(change in Gross PP&E)
6,547.0
7,345.0
5,398.0
5,470.0
6,420.0
6,598.0
11.
Free Cash Flow (8 + 5 – 9 – 10)
648.7
-110.1
1,814.6
1,528.0
1,677.1
1,948.7
PV Free cash flow, years 1-4
3,501.6
Horizon value in year 4
PV Horizon value
15,480.0
24,358.1
PV of company
18,981.7
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