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    Corporate Valuation - Mini Assignment 1 (Solution)

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    David
    This document provides an example valuation of a company using different methods. It first shows pro forma income statements for a levered and unlevered company. It then provides assumptions and calculates valuation metrics like WACC, return on equity, and debt-to-equity ratios. Finally, it performs valuations using the APV, DCF, and FTE methods, obtaining values for the equity of $74,000, $56,000, and $56,000 respectively under different assumptions.

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    Corporate Valuation - Mini Assignment 1 (Solution)

    Uploaded by

    David
    129 views5 pages
    This document provides an example valuation of a company using different methods. It first shows pro forma income statements for a levered and unlevered company. It then provides assumptions and calculates valuation metrics like WACC, return on equity, and debt-to-equity ratios. Finally, it performs valuations using the APV, DCF, and FTE methods, obtaining values for the equity of $74,000, $56,000, and $56,000 respectively under different assumptions.

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    Corporate Valuation - mini assignment 1 (solution)

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    This document provides an example valuation of a company using different methods. It first shows pro forma income statements for a levered and unlevered company. It then provides assumptions and calculates valuation metrics like WACC, return on equity, and debt-to-equity ratios. Finally, it performs valuations using the APV, DCF, and FTE methods, obtaining values for the equity of $74,000, $56,000, and $56,000 respectively under different assumptions.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    129 views5 pages

    Corporate Valuation - Mini Assignment 1 (Solution)

    Uploaded by

    David
    This document provides an example valuation of a company using different methods. It first shows pro forma income statements for a levered and unlevered company. It then provides assumptions and calculates valuation metrics like WACC, return on equity, and debt-to-equity ratios. Finally, it performs valuations using the APV, DCF, and FTE methods, obtaining values for the equity of $74,000, $56,000, and $56,000 respectively under different assumptions.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    of 5

    Corporate Valuation - Valuation Methods

    Mini assignment 1 - Solution

    Levered Co. Unlevered Co.


    P&L Year 1 Year 1
    Revenues 50,000 50,000
    Operating Costs -30,000 -30,000
    Depreciation -13,000 -13,000
    EBIT 7,000 7,000
    Interest -1,200 0
    EBT 5,800 7,000 Tax Shields:
    Corporate Taxes -2,160 -2,400 240
    Net Profit 3,640 4,600

    Assumptions:
    Tax Rate 20% 20%
    Penalty -1,000 -1,000
    Effective Tax Rate 37.2% 34.3%
    Interest Rate 3.0%

    Assumptions:
    Rf 2.0%
    Rd 3.0%
    MRP 5.0%
    βu 0.8
    Ru 6.0%
    Perpetuity growth 2.0%

    D/EV (implicit) 41.7%


    E/EV (implicit) 58.3%
    D/E (implicit) 71.4%
    Re 8.1%
    WACC 5.8%

    Questions:
    1) Complete APV valuation table considering:
    (i) a Pre-Defined Debt
    (ii) Debt changing with the EV

    2) Complete DCF valuation table in 2 steps:


    (i) Calculate: D/EV (implicit)
    E/EV (implicit)
    Re (implicit)
    WACC
    (ii) Complete DCF valuation table applying the appropriate cash flows and discount rates

    3) Complete FTE valuation table

    Alternative Valuation Methods (discounted cash flows based, as of Year 0):

    APV Pre-defined Debt changing


    Debt with EV
    Unlevered FCF 3,600 3,600
    @ Ru 6.0% 6.0%
    = Unlevered EV 90,000 90,000

    Tax Shields 240 240


    @ Rd or Ru 3.0% 6.0%
    = Value Tax Shields 24,000 6,000

    = Levered EV 114,000 96,000

    CF Finan. Debt -400 -400


    @ Rd 3.0% 3.0%
    = Value Fin. Debt -40,000 -40,000

    + Unlevered EV 90,000 90,000


    + Value Tax Shields 24,000 6,000
    + Value Fin. Debt -40,000 -40,000
    = Value of Equity 74,000 56,000
    Δ% 32%
    BS Year 0 Year 1 Cash Flows Year 1
    Tangible Assets 49,000 49,500 EBIT 7,000
    Working Capital 1,000 1,500 Notional Taxes -1,400
    Total Assets 50,000 51,000 Tax Adjustment -1,000
    NOPLAT 4,600
    Financial Debt 40,000 40,800 Depreciation 13,000
    Equity 10,000 10,200 Gross Cash Flow 17,600
    Total Liab. & Equity 50,000 51,000 Capex -13,500
    Change in WC -500
    Confirmation: 1 1 Unlevered FCF 3,600
    Tax Shields 240
    Levered FCF 3,840

    Interest -1,200
    Change in Fin. Debt 800
    CF Financial Debt -400
    Equity CF -3,440
    Total 0

    Confirmation: 1
    and discount rates

    DCF

    Unlevered FCF 3,600


    @ WACC 5.8%
    = Levered EV 96,000

    CF Finan. Debt -400


    @ Rd 3.0%
    = Value Fin. Debt -40,000

    + Levered EV 96,000
    + Value Fin. Debt -40,000
    = Value of Equity 56,000 1

    FTE

    Cash Flow Equity 3,440


    @ Re 8.1%
    = Value of Equity 56,000 1
    1

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