BC Corp. reported EBITDA of $1290 million in 2003, prior to interest expenses of $215 million and depreciation charges of $400 million. Capital Expenditures in 2003 amounted to $450 million, and working capital was 7% of revenues (which were $13,500 million). The firm had debt outstanding of $3.068 billion (in book value terms), trading at a market value of $3.2 billion, and yielding a pre-tax interest rate of 8%. There were 62 million shares outstanding, trading at $64 per share, and the most recent beta is 1.10. The tax rate for the firm is 40%. The Treasury bond rate is 7%. The firm expects revenues, earnings, capital expenditures, and depreciation to grow at 9.5% a year from 2004 to 2008, after which time the growth rate is expected to drop to 4%. (Capital spending will offset depreciation in the steady state period.) The company also plans to lower its debt/equity ratio to 50% for the steady state (which will result in the pre-tax interest rate dropping to 7.5%.) a. Estimate the value of the firm. b. Estimate the value of the equity in the firm and the value per share.
Year |
EBITDA |
Deprec'n |
EBIT |
EBIT (1-t) |
Cap Exp. |
_ WC |
FCFF |
Term Value |
|
2003 |
$1,290 |
$400 |
$890 |
$534 |
$450 |
$82 |
$402 |
||
2004 |
$1,413 |
$438 |
$975 |
$585 |
$493 |
$90 |
$440 |
||
2005 |
$1,547 |
$480 |
$1,067 |
$640 |
$540 |
$98 |
$482 |
||
2006 |
$1,694 |
$525 |
$1,169 |
$701 |
$591 |
$108 |
$528 |
||
2007 |
$1,855 |
$575 |
$1,280 |
$768 |
$647 |
$118 |
$578 |
||
2008 |
$2,031 |
$630 |
$1,401 |
$841 |
$708 |
$129 |
$633 |
$14,326 |
|
'2003-2008 |
After 2008 |
||||||||
Cost of Equity = |
13.05% |
12.30% |
|||||||
AT Cost of Debt = |
4.80% |
4.50% |
|||||||
Cost of Capital = (WACC) |
9.37% |
9.69% |
Terminal Value
= {EBIT (1-t)(1+g) - (Rev1998 - Rev1997) * WC as % of Rev}/(WACC-g)
= (841 * 1.04) - (13500 * 1.0955 * 1.04 - 13500 * 1.0955)
* 0.07 /(.0969-.04) = $14,326
A. Value of the Firm= 440/1.0937 + 482/1.09372 + 528/1.09373 + 578/1.09374 + (633 + 14941)/1.09375 = $11,172
B. Value of Equity in the Firm = ($11566 - Market Value of Debt) = 11172 - 3200 = $7,972
Value Per Share = $7,972/62 = $128.57
BC Corp. reported EBITDA of $1290 million in 2003, prior to interest expenses of $215 million...
Lockheed Corporation reported EBITDA of $4,000 million in the year just ended (year 0), prior to interest expenses of $1,000 million and depreciation charges of $600 million. Capital expenditures in the year just ended amounted to $1,000 million, and working capital was 8% of revenues (which was $20,000 million). The tax rate for the firm was 40%. The firm had debt outstanding of $18.00 billion (in book value terms), trading at a market value of $20.0 billion and yield a...
4. Generic Corp. is a publicly traded company. It has 20 million shares trading at $15/share and its book value of equity is $150 million. The firm also has book value of debt of $100 million and market value of debt of $120 million. The cost of equity for the company is 10%, the pre-tax cost of debt is 4% and the marginal tax rate is 40%. What is the cost of capital? О 6.36% О 7.00% 7.11% О 7.35%...
X company is not a highly leveraged company with 400 million shares, trading at $75/share and $3 billion in debt (in market value terms) outstanding. The firm has a A3 rating with a default spread of 1.1% over the riskfree rate. Estimate the pre-tax cost of debt. a 1.10% b 1.65% c 2.75% d 3.85% e 1.82%
Suppose a firm has EBIT of $4.95 million, interest expenses of $2.4 million, depreciation expenses of $1.3 million, and has a tax rate of 35%. Its bank agrees to lend up to 4.2 times its EBITDA. How much debt can the firm borrow from the bank? The maximum amount they can borrow is $? million
Suppose Rocky Brands has earnings per share of $2.31 and EBITDA of $30.4 million. The firm also has 4.8 million shares outstanding and debt of $115 million (net of cash). You believe Deckers Outdoor Corporation is comparable to Rocky Brands in terms of its underlying business, but Deckers has no debt. If Deckers has a P/E of 13.1 and an enterprise value to EBITDA multiple of 7.1, estimate the value of Rocky Brands stock using both multiples. Which estimate is...
Suppose Rocky Brands has earnings per share of $2.17 and EBITDA of $29.9 million. The firm also has 5.8 million shares outstanding and debt of $140 million (net of cash). You believe Deckers Outdoor Corporation is comparable to Rocky Brands in terms of its underlying business, but Deckers has no debt. If Deckers has a P/E of 13.5 and an enterprise value to EBITDA multiple of 7.9, estimate the value of Rocky Brands stock using both multiples. Which estimate is...
Suppose Rocky Brands has earnings per share of $2.46 and EBITDA of $29.9 million. The firm also has 5.25 million shares outstanding and debt of $135 million (net of cash). You believe Deckers Outdoor Corporation is comparable to Rocky Brands in terms of its underlying business, but Deckers has no debt. If Deckers has a P/E of 13.2 and an enterprise value to EBITDA multiple of 7.2, estimate the value of Rocky Brands stock using both multiples. Which estimate is...
In the most recent year, Samsung reported after-tax operating income of $20 million. The company had capital expenditures of $25 million, depreciation of $15 million and all other net operating assets increased by $5 million. Samsung expects to increase free cash flow each year for the next five years by 6% per year, after which they expect a continuing or terminal growth rate of 2%. The company has 10 million shares outstanding and is entirely financed by equity. Samsung's beta...
You are trying to value ListoFact, a data processing company. The company generated $1 billion in revenues in the most recent financial year and expects revenues to grow 3% per year in perpetuity. It generated $30 million in after-tax operating income in the most recent financial year and expects after-tax operating margin to increase 1% per year starting from the current year (Year 0) to year 3. After year 3, the margin will stabilize at year 3 levels forever. The...
After-tax operating income [EBIT(1 - T)] for 2020 is expected to be $550 million. The depreciation expense for 2020 is expected to be $60 million. The capital expenditures for 2020 are expected to be $450 million. No change is expected in net operating working capital. The free cash flow is expected to grow at a constant rate of 3% per year. The required return on equity is 15%. The WACC is 9%. The firm has $209 million of non-operating assets....