Essay on How to solve valuation problems

Submitted By gkbhai
Words: 531
Pages: 3
Open Document
Question 1-a
Calculation of the free cash flow for each year in the following 5 years using:
FCF=OCF-NCS-ΔNWC = EBIT (1-tax rate)+ Depreciation-NCS-ΔNWC

Calculation of Free Cash Flow in $ Million

2013
2014
2015
2016
2017
EBITDA
530.40
549.74
567.77
584.25
598.95
Less Depreciation
60.00
60.00
60.00
60.00
60.00
EBIT
470.40
489.74
507.77
524.25
538.95
Less Interest
50.00
50.00
50.00
50.00
50.00
EBT
420.40
439.74
457.77
474.25
488.95
Less Tax
126.12
131.92
137.33
142.27
146.68
EAT (Net Income)
294.28
307.82
320.44
331.97
342.26
NOPAT
329.28
342.82
355.44
366.97
377.26
Add Depreciation
60.00
60.00
60.00
60.00
60.00
Less Capita Expenditure
133.57
136.95
140.11
142.99
145.57
Less Changes in working Capital
0.00
0.00
0.00
0.00
0.00
Free Cash Flow
255.71
265.86
275.33
283.98
291.70
Earnings Per Share in Cents
58.856
61.56338
64.08747
66.39462
68.45286
Dividends Per Share in Cents
44.142
46.17253
48.06561
49.79597
51.33964
Growth Rate in Earning Per Share
0.051
0.046
0.041
0.036
0.031

From 2013, every year’s data is calculated depending on the previous year. So, we take 2013’s data as an example. Firstly, we need to estimate the net income and then from bottom to top to calculate EBIT. Since growth rate of earning per share in 2013, is 5.1% and the earning per share in 2012 was 56 cents. So, the earning per share in 2013 is 56(1+5.1%) = 58.856 cents.

Given that the firm has 500 million shares outstanding, the net income2013 = (500×earning per share)/100 = 294.28 million dollars. The tax rate is given by 30%, the depreciation, EBITDA-EBIT=60 million, will remain unchanged for following years, so the EBIT 2013 = (Net income) / (1-0.3) + 60+50 = 470.4 in million.

Then, EBIT (1 – tax rate) = 329.28 in million (2013’s data).

The capital expenditure each year equals to the depreciation expense plus the reinvested earnings. The net capital spending = depreciation + reinvested earnings. Since the company has no intention to change its dividend payout ratio, Dividend per share/Earning per share=0.75,
Show More

Related Documents: Essay on How to solve valuation problems

Essay on Goal and Field. Talk Abt Dcf

you like it. Talk about how you do different things everyday, work on different stages of different deals. Talk about how IB fits both short-term goals and long-term goals by giving you the skills to work in any other finance field.Talk abt DCF. Calculate Net cash flow. Divide it by 1+APV/WACC raised to the number of years down the road. In the last year of valuation, add NCF and TV and divide it. TV is CF in that year multiplied by 1+g divided by WACC/APV – g. Illustrate how education has prepared…

Words 455 - Pages 2

Case Two Element Bars2 Essay example

established business connections. (Shein, 2011) Out of the options listed here, angel investors are arguably the best option to provide financing to Element Bars. 3. How would you calculate the value of Element Bars? What objective and subjective data support (and undermine) your valuation? How would you defend your valuation, and how much ownership do you think Jonathan should give up? Miller is asking for $150,000 for 15% equity in Element Bars, This means that he has valued the company at $1,000…

Words 1960 - Pages 8

Mgt 415 Chapter 1 Reading Guide

undoubtedly have lead to different standards. The chapter also introduces some other key themes of the book: the need for tradeoffs in creating standards for a complex environment (we can't please everyone); the idea that accounting is intended to solve information asymmetry (our first theory), and that the things we do to reduce adverse selection may make moral hazard worse, and vice versa (again, we can't serve all needs). Finally, the chapter also introduces an idea we won't explore till late…

Words 1463 - Pages 6

MGM230 20Class 20 3 Bonds STUDENT 2 Essay

Additional office hours for Quiz 1 Please check blackboard for additional TA office hours for Quiz 1 2 Agenda • Review of TVM lecture • Real-life application – a mortgage example • Objectives for today’s lecture • Chapter 6: Bonds • Suggested problems • Wrap-up and forthcoming attractions 3 4 Homework …The average Canadian home sold for $386,585 in June, which means monthly payments of $1,865 if you assume a 3.39 per cent fixed five-year mortgage rate and a 5 per cent down payment. If prices…

Words 1641 - Pages 7

Essay on 3350 Outline

refine and deepen student’s knowledge of the theory and practice of financial decisions in a rapidly changing corporate and business environment. The course material will evolve around three major problems/decisions faced by financial managers: Working Capital Management (short-term capital financing: how to raise, use and manage short-term capital) Capital Structure Analysis (optimal debt/equity mix and long-term sources of capital) Dividend Policy (management decisions to pay out earnings to the…

Words 1968 - Pages 8

Minimizing Environmental Uncertainty Essay

the term.Environmental uncertainty has many definitions.Thompson (1967) identifiesenvironmental uncertainty as the fundamental problem with which top-level organizational administrators must cope because there is a link between the budget to include rolling forecasting and the uncertainty of the environment(Ekholm and Wallin ,2000). It has also been seen as a central problem of organizations(March & Simon, 1958; Thompson, 1967).Milliken (1987), in a review of the literature and research on environmental…

Words 1781 - Pages 8

case 2 Essay

people watching or not. In this case, when Cherelstein knew the fraud that Mouns committed, he did not happy at all. He wanted to meet Mouns and talks to him make him stop. The second part is moral judgment. Moral judgment means when a person knows how people may get affected by the alternatives, choice must be made based on which action is suit better on moral. Cherelstein knew the company has two books was wrong and he gave Mouns a chance to let him repay the company by using his personal assets…

Words 565 - Pages 3

Essay on Northampton Group Inc. – Case Study Analyses: How to Increase Shareholder Value

Northampton Group Inc. – Case Study Analyses: How to increase shareholder value Nicole Arends, Jenny Feng, Laura Tromp & Zilha Wever FHTMS University of Aruba Mr. Don Taylor Corporate Finance FTS 2415 March 26, 2013 Introduction This Corporate Finance paper focuses on analyzing the challenges that Northampton Group Inc. (NGI) is facing as it tries to increase shareholder value. In the case study it is stated by the firm’s major shareholders, that they believe…

Words 5328 - Pages 22

Warren Buffet Case Essay

Brendan Hefter, Taylor Cahn, Henry Stupp, Colin Riley FNCE 4850­002 Case Study ­ Warren E. Buffett, 2005 Executive Summary Background / Problems Warren Buffett, The CEO of Berkshire Hathaway, historically delivers to his shareholders noteworthy excess returns, however, with how massive this firm has become, it is becoming increasingly more difficult to deliver similar results. In his annual letter to his shareholders, Buffett explains that his…

Words 1337 - Pages 6

Researcher: Cash Flow and Special Consideration Essay

week. 2.3 Summary of Course This course is part of the funds management specialisation in the MCOM program. This course develops both theoretical and practical knowledge in the area of funds management focusing on advanced techniques in securities valuation including both fundamental and quantitative analysis. 2.4 Course Aims and Relationship to Other Courses This course builds off the material covered in introductory investments and portfolio selection (FINS 5513). Students should only undertake this…

Words 3476 - Pages 14