Question

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 firm is expected to have depreciation of $ 20 million and capital expenditures of $15 million each year for the next 3 years and to earn a 10% return on capital in perpetuity after that. There are no working capital requirements. The cost of capital will be 12% for the next 3 years and 10% thereafter.

(Hint, we are currently in Year 0 and the After Tax Operating Margin in Year 0 is 3%)

1. Estimate the value of the firm at the end of the third year (terminal value).

2. Estimate the Present Value of the Terminal Value.

3. Estimate the value of equity per share today, if the firm has $150 million in debt outstanding, $25 million as a cash balance and 10 million shares.

Answer 1

Answer Revenue - 1,000 )OOC, 000 字 1,000, ооо, ооох о, 3 30,000,000 니1, 200,000 DeDretiáuon on 드 $80,000, 000 capital apenditure, 4,5,000,000

Revenue =41,060,900,000 n Toc opei 亭,066 , qoo, ocoxe.ooy en corne- opera-bag .IAL D-pret Grourth Your = 31.

Tal oper ain9 margin 0nertina ncome- flou =($ 6s,S63, Gao+/ 20, 006,000) _ h S,000, 000 Grouth Yate 31. , 530,529

AHLI Taz opeva- ing macin = 6.oo.1

Hear L 46,200) ooo ee as OLO = ear 3

Cost capital Mear flow !,las) S09, g 10x6.05% cash ee FcF 9γουο.th E-y./. 1, 643,138 lst

turminal Cash o at the End allows Since Cas catalona 1.vinq Cluyin Then 1+12 686, 669/84.31

lcos akue ee Cas Cost la t Present. vabu. C Cash flou) 46,200,000 ee cash.flou 纟58,0us, ooo 58,045,000

Cat 3. ee ach ou10, 56,6 Cost 4136,895 '739 = $ 824, ue, 858 olows Vakue Debt- Qs",000,000 cash

Nambev o,000, 000 4.9y value of epitt per shave :/ч.94./