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Valmet

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175 views7 pages

Valmet

Uploaded by

mrgxkjzhyc
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Sample problem #1

Dantzler Corporation is a fast-growing supplier of office prod ucts. Analysts


project the following free cash flows (FCFs) during the next 3 years, after
which FCF is expected to grow at a constant 5% rate. Dantzler’s WACC is 11%.

a. What is Dantzler’s horizon, or continuing, value?

b. What is the firm’s market value today? Assume


that Dantzler has zero non-operating assets.

c. Suppose Dantzler has $112.60 million of debt and 25 million shares of


stock outstanding. What is the estimated current price per share?
Sample problem #1
a. What is Dantzler’s horizon, or continuing, value?
FCFN+1 45,000,000 x 1.05 47,250,000
= = = 787,500,000
WACC - g 11% - 5% 6%

b. What is the firm’s market value (total corporate value) today?


Assume that Dantzler has zero non-operating assets. (rounded to 2 decimals).
PV of Future Cash Flows PV of Horizon Value Non-Operating Assets
(11,000,000) 787,500,000
= (9,900,000) = 574,875,000 =0
(1+11%) 1 (1+11%) 3

(17,000,000) 1. Sum of PVs of FCF 36,720,000


2
= 13,700,000
(1+11%) 2. PV of Horizon Value 574,875,000

45,000,000 3. Value of Company Operations 611, 595,000


= 32,850,000
(1+11%) 1
4. MV of Non-Operating Assets . 0

36,720,000 5. Total Corporate Value 611, 595,000


Sample problem #1
c. Suppose Dantzler has $112.60 million of debt and 25 million shares of
stock outstanding. What is the estimated current price per share?

1. Sum of PVs of FCF 36,720,000

2. PV of Horizon Value 574,875,000

3. Value of Company Operations 611, 595,000

4. MV of Non-Operating Assets . 0

5. Total Corporate Value 611, 595,000

6. Less: MV of Debt and PS (112,600,000)

7. Intrinsic Value of
Common Equity 498,995,000

8. Divide by:
Shares Outstanding 25,000,000

9. Intrinsic Value Per Share 19.9598


Sample problem #2
Assume that today is December 31, 2018, and that the follow ing information
applies to Abner Airlines:
After-tax operating income [EBIT(1 – T)] for 2019 is expected to be $400
million.
The depreciation expense for 2019 is expected to be $140 million.
The capital expenditures for 2019 are expected to be $225 million.
No change is expected in net operating working capital.
The free cash flow is expected to grow at a constant rate of 6% per year.
The required return on equity is 14%.
The WACC is 10%.
The firm has $200 million of non-operating assets.
The market value of the company’s debt is $3.875 billion.
200 million shares of stock are outstanding.

Using the corporate valuation model approach, what should be the


company’s stock price today?
Sample problem #2
Using the corporate valuation model approach, what should be the
company’s stock price today?
1. Sum of PVs of FCF 286,363,636
EBIT(1 - T) 400,000,000 2. PV of Horizon Value 7,588,636,364
Add: Depreciation and amortization 140,000,000 3. Value of Company Operations 7,875,000,000
Less: Capital expenditures (225,000,00) 4. MV of Non-Operating Assets . 200,000,000
Less: Net operating working capital 0 5. Total Corporate Value 8,075,000,000
Free Cash Flows 315,000,000
6. Less: MV of Debt and PS (3,875,000,000)
Divide by: [(1+10%) 1]
7. Intrinsic Value of
Present Value of Free Cash Flows 286,363,636
Common Equity 4,200,000,000
8. Divide by:
Horizon FCFN+1 315,000,000 x 1.06
= = 8,347,500,000 Shares Outstanding 200,000,000
Value =
WACC - g 10% - 6% 9. Intrinsic Value Per Share 21
8,347,500,000
Present Value of Horizon Value = = 7,588,636,364
[(1+10%)1]
Sample problem #2 (alternative solution)
Using the corporate valuation model approach, what should be the
company’s stock price today?

EBIT(1 - T) 400,000,000
Value of Company Operations 7,875,000,000
Add: Depreciation and amortization 140,000,000
MV of Non-Operating Assets . 200,000,000
Less: Capital expenditures (225,000,00)
Less: Net operating working capital 0 Total Corporate Value 8,075,000,000
Free Cash Flows 315,000,000 Less: MV of Debt and PS (3,875,000,000)

Intrinsic Value of
FCF
Value of Company Operations = Common Equity 4,200,000,000
WACC - g
Divide by:
315,000,000 Shares Outstanding 200,000,000
= 10% - 6% Intrinsic Value Per Share 21

= 7,875,000,000
Sample problem #3
Scampini Technologies is expected to generate $25 million in free cash flow next year, and
FCF is expected to grow at a constant rate of 4% per year indefinitely. Scampini has no debt
or preferred stock, and its WACC is 10%. Scampini has 40 million shares of stock outstanding.

What is the stock’s value per share?


Value of Company Operations 416,666,667
FCF
Value of Company Operations = MV of Non-Operating Assets . 0
WACC - g
Total Corporate Value 416,666,667
25,000,000 Less: MV of Debt and PS ( 0)
=
10% - 4% Intrinsic Value of
Common Equity 416,666,667
= 416,666,667
Divide by:
Shares Outstanding 40,000,000
Intrinsic Value Per Share 10.42

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