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Equity Valuation Methods by hnt69302

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									Final Exam: Free Cash Flow Valuation Methods, HBS Case 9-201-094

Initial Cost $1.5 Million December 2001
Free Cash Flow Forecast
                                                  2002     2003       2004       2005            2006
Sales                                         1200000 2400000     3900000    5600000         7500000
EBITD (Rev. less exp.)                         180000 360000       585000     840000         1125000
Less Depreciation                              200000 225000       250000     275000          300000
EBIT                                            -20000 135000      335000     565000          825000
Taxes 40%                                         8000 -54000     -134000    -226000         -330000
EBIAT                                           -12000    81000    201000     339000          495000
Depreciation (add back)                        200000 225000       250000     275000          300000
Operating Cash Flow                            188000 306000       451000     614000          795000
Less CAP EX                                   -300000 -300000     -300000    -300000         -300000
Less Investment in (changes in) NWC                  0        0          0          0               0
Free Cash Flow                             -112,000.00 6,000.00 151,000.00 314,000.00      495,000.00
Terminal Value                                                                           5,837,264.15
Planned Debt to Value Ratio B/(S+B)                 0.3 This is the choice variable. When you choose a proportion of
Implied Debt to Equity Ratio B/S          0.428571429
Tax Rate                                            0.4
Asset Beta                                          1.5 unlevered cost of capital               0.158
Debt Beta                                          0.25 Cost of Debt capital                    0.068
Equity Beta                               1.821428571 Cost of Equity Capital             0.181142857
WACC                                           0.13904

Present Value of forecasted FCFs - WACC     453,188.26
Present Value of the Terminal Value       3,044,489.42
Total Value                               3,497,677.67
Net Present Value                         1,997,677.67
Implied Initial Amount of Debt            1,049,303.30
                 2007




            519,750.00

you choose a proportion of debt the WACC is easier to apply.
Final Exam: Free Cash Flow Valuation Methods, HBS Case 9-201-094

Initial Cost $1.5 Million December 2001
Free Cash Flow Forecast
                                                 2002          2003         2004         2005           2006
Sales                                        1200000       2400000      3900000      5600000        7500000
EBITD (Rev. less exp.)                        180000        360000       585000       840000        1125000
Less Depreciation                             200000        225000       250000       275000         300000
EBIT                                           -20000       135000       335000       565000         825000
Taxes 40%                                        8000        -54000     -134000      -226000        -330000
EBIAT                                          -12000         81000      201000       339000         495000
Depreciation (add back)                       200000        225000       250000       275000         300000
Operating Cash Flow                           188000        306000       451000       614000         795000
Less CAP EX                                  -300000       -300000      -300000      -300000        -300000
Less Investment in (changes in) NWC                 0             0            0            0              0
Free Cash Flow                            -112,000.00      6,000.00   151,000.00   314,000.00     495,000.00
Unlevered Terminal Value at 2006                                                                4,812,500.00
Unlevered Cost of Capital                        0.158
PV of Forecast period FCFs - rA             417,336.08
PV of Terminal Value                      2,311,149.00
Unlevered Present Value of All FCFs       2,728,485.09
Unlevered NPV                             1,228,485.09
Planned Level of Debt Financing           1,000,000.00 1,000,000.00 1,000,000.00 1,000,000.00 1,000,000.00
Tax Shields                                  27,200.00    27,200.00    27,200.00    27,200.00    27,200.00
Terminal Value of Tax Shields                                                                   400,000.00
Cost of Debt Capital                             0.068
PV of Tax Shields - rB                      112,125.15
PV of Terminal Value of Tax Shields         287,874.85
Total Present Value of Tax Shields          400,000.00
Total Net Present Value of Project        1,628,485.09
Total Value of Project                    3,128,485.09
Implied Initial Debt to Value Ratio       0.319643525

Interest Payments                           68,000.00    68,000.00     68,000.00    68,000.00     68,000.00
      2007




519,750.00




When you choose a dollar amount of debt use the APV
         0 Rate of Decline for Debt Level

								
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