Advanced Corporate Finance – Valuation numericals

Posted by admin on February 13, 2018 in Articles

ACF 1: Valuation: IA2Problem 1: Elmdale Enterprise’s FCF:When valuing the operations of a firm using a discounted cash flow model, the operating cash flow – unlevered free cash flow (UFCF) – is needed. The free cash flow calculation in equation form:Operating Income (EBIT) = Revenues – Cash Costs – Depreciation ExpenseEBIAT = EBIT – Taxes, where Taxes = (tax rate) * (EBIT)UFCF = EBIAT + Depreciation Expense – CAPEX – Increase in NWCTherefore: UFCF Yr 1 = (565 – 400 – 50) * (1-0.35) + 50 – 40 – 25
= $59.75mn UFCF Yr 2 = (626 – 475 – 60) * (1- 0.35) + 60 -50 +5
= $74.15mnProblem 2: Estimating Free Cash Flows:a. Calculate the FCF for the year 2012: Increase in net fixed assets in 2012 = 2696 – 2142 = $554mn NWC end of 2012 = CA – CL (Acc/Paybl and Accrued Expenses) =
[1374 – 299] – 1105 + 423 = $393NWC end of 2011 = CA – CL (Acc/Paybl and Accrued Expenses) =
[1397- 404] – 882 -200 = ($311) ie a negative NWCIncrease in NWC during 2012 = 393 – 311 = $82FCF = NOPAT – increase in NFA – increase in NWC
NOPAT = 383.46, increase in NFA = 554, increase in NWC = 82Therefore: FCF = -252.54 = ($252.54) ie a negative FCFb. Fill out the Cash flow statement.
Cash Flow Statement
– Net Income
383
Earnings Statement 2012
– Depreciation
104
Earnings Statement 2012
– Change in CL
223- Change in CA
(82) ie -82Cash Flow from Operations
346
? (NI, Dep., ?CL, ?CA)
– Investment in Fixed Assets
(554)
(2696-2142)
Cash Flow from investment
658
554 + Depreciation
– Increase in common stock
25
Balance Sheet
– Increase in long-term debt
(50)
Balance Sheet
– Dividends paid
(50)
Earnings Statement 2012
Cash Flow from Financing
(75)
? (?CS, ?LTD, Div.)
Change in Cash Balance
(105)c. This firm is considering repurchasing shares to the extent of $150. But this would mean that it will have to borrow additional short term debt from banks so as to…