Question

3. Company Valuation

Fley Airline Supply is trading at $15/share but you think that price may not be right. You have the following data and you want to use it to calculate its share price:

Gross Sales - $124M                         Annual Sales growth rate - 3.0%

COGS - 54% of sales                          Advert., Promotion & Selling - $5M

General & Admin - $3.5M               Yearly inflation for non-COGS expenses - 3.3%

Tax rate - 21%         Discount rate - 8%        Cash balance - $3M        Debt - $5M        Shares o/s - 44M

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Answer 1

Fley Airline Supply valuation
	Yrs 1-6
Sales growth	3%			CashFlows						Total
Costs:				1	2	3	4	5	6
COGS (% of sales)	54%		Sales	$124.00	$127.72	$131.55	$135.50	$139.56	$143.75
Advrt., Prom. & Sell.	$5.00		COGS	$66.96	$68.97	$71.04	$73.17	$75.36	$77.62
G&A	$3.50		Advrt., Prom. & Sell.	$5.00	$5.17	$5.34	$5.51	$5.69	$5.88
Rates:			G&A	$3.50	$3.62	$3.73	$3.86	$3.99	$4.12
Tax	21%		Net Income before Tax	$48.54	$49.97	$51.44	$52.96	$54.52	$56.13
Discount	8%		Taxes	$10.19	$10.49	$10.80	$11.12	$11.45	$11.79
Inflation	3.30%		Net Income after Tax	$38.35	$39.48	$40.64	$41.84	$43.07	$44.34
Results			Cash Flow adjustments:
PV of NCF (incl. TV)	$172.51		Working Capital	$2.00	-$2.00	-$1.20	-$0.30	-$1.00	-$2.00
+Cash	$3.00		Capital Expenditures	-$2.00	-$2.00	-$3.00	-$4.00	-$4.00	-$4.00
-Debt	-$5.00		Net Cash Flows	$38.35	$35.48	$36.44	$37.54	$38.07	$38.34	TV
Total Equity(M$)	$170.51		NCF(incl. terminal value)	$38.35	$35.48	$36.44	$37.54	$38.07	$38.34	$0.00	(not given , so assumed 0)
/# of shares outstanding (M)	$44.00		PV Factor at Discount Rate	$0.93	$0.86	$0.79	$0.74	$0.68	$0.63
Price/Share ($)	$3.88		PV of NCF	$35.51	$30.42	$28.93	$27.59	$25.91	$24.16	$172.51
				Growth Rate
	Price/Share ($) for:		$3.88	3%	3.5%	4%
			8%	$3.88	$3.93	$3.99	Disc. Rate
			9%	$3.76	$3.81	$3.87
			10%	$3.65	$3.70	$3.76