Analysts expect that under new management the firm could increase it revenue and operating expenses by...

Analysts expect that under new management the firm could increase it revenue and operating expenses by 12% next year 10%and the following year 7%. Analysts believe the marginal cost to be 6%, the Wacc 8% and the tax to be 20%.

Assumptions. You must adjust numeric value of each assumption as necessary to project cash flow, income, assets & liabilities, etc.

Valuation. Construct a valuation using a DCF analysis to calculate the Enterprise and Equity Values. Apply an EBITDA multiple of 7 to calculate TV.

Commentary. Your commentary should focus on how much your would pay for this firm and why.

	Actual	Projected
	2018	2019	2020	2021	2022	2023
Total Revenue	47,000.0	51,700.0	56,870.0	62,557.0	68,812.7	75,694.0
Cost of Revenue	30,000.0	33,000.0	36,300.0	39,930.0	43,923.0	48,315.3
Gross Profit	17,000.0	18,700.0	20,570.0	22,627.0	24,889.7	27,378.7
Operating Expenses
Depreciation	900.0	636.2	683.2	734.9	791.8	854.3
S, G & A	7,800.0	8,580.0	9,438.0	10,381.8	11,420.0	12,562.0
Non-recurring charge	500.0	-	-	-	-	-
Operating Income	7,800.0	9,483.8	10,448.8	11,510.3	12,677.9	13,962.4
Interest Expense	335.0	30.1	30.1	30.1	30.1	30.1
Earnings before income taxes	7,465.0	9,453.7	10,418.7	11,480.2	12,647.8	13,932.3
Income Taxes	1,513.0	1,890.7	2,083.7	2,296.0	2,529.6	2,786.5
Net Income	5,952.0	7,563.0	8,335.0	9,184.2	10,118.3	11,145.8

Balance Sheet
All numbers are in millions.

	2018	2019	2020	2021	2022	2023
Cash	1,750.0	8,326.8	15,576.9	23,567.7	32,373.3	42,075.3
Receivables	4,097.0	4,506.7	4,957.4	5,453.1	5,998.4	6,598.3
Inventories	4,783.0	5,261.3	5,787.4	6,366.2	7,002.8	7,703.1
Current Assets	10,630.0	18,094.8	26,321.7	35,387.0	45,374.5	56,376.7

Net PPE	6,362.0	6,832.0	7,349.0	7,917.7	8,543.3	9,231.4

Goodwill	1,860.0	1,860.0	1,860.0	1,860.0	1,860.0	1,860.0

Total Assets	18,852.0	26,786.8	35,530.7	45,164.7	55,777.8	67,468.1


Payables	2,888.0	3,176.8	3,494.5	3,843.9	4,228.3	4,651.2
Other Liabilities	830.0	913.0	1,004.3	1,104.7	1,215.2	1,336.7
Long Term Debt	4,224.0	4,224.0	4,224.0	4,224.0	4,224.0	4,224.0

Common Equity	1,762.0	1,762.0	1,762.0	1,762.0	1,762.0	1,762.0
Retained Earnings	9,148.0	16,711.0	25,045.9	34,230.1	44,348.3	55,494.2

Total Liabilities & Equity	18,852.0	26,786.8	35,530.7	45,164.7	55,777.8	67,468.1

Depreciation		636.2	683.2	734.9	791.8	854.3

PPE
Beg		6,362.0	6,832.0	7,349.0	7,917.7	8,543.3
Additions		1,106.2	1,200.2	1,303.6	1,417.4	1,542.4
Depreciation or Disposals		636.2	683.2	734.9	791.8	854.3
End	6,362.0	6,832.0	7,349.0	7,917.7	8,543.3	9,231.4

Debt
Beg		4,224.0	4,224.0	4,224.0	4,224.0	4,224.0
Additions		-	-	-	-	-
Reductions		-	-	-	-	-
End	4,224.0	4,224.0	4,224.0	4,224.0	4,224.0	4,224.0

Interest Calculation
Beg Debt Level		4,224.0	4,224.0	4,224.0	4,224.0	4,224.0
Interest Rate		0.7%	0.7%	0.7%	0.7%	0.7%
		30.1	30.1	30.1	30.1	30.1
Cash
Beg		1,750.0	8,326.8	15,576.9	23,567.7	32,373.3

Operating Cash Flow		8,199.2	9,018.2	9,919.1	10,910.1	12,000.1
NWC		(516.2)	(567.8)	(624.7)	(687.0)	(755.8)
Debt Borrowings		-	-	-	-	-
Sources		7,683.0	8,450.4	9,294.4	10,223.1	11,244.3

Dividends		-	-	-	-	-
Capital Expenditures		1,106.2	1,200.2	1,303.6	1,417.4	1,542.4
Debt Payments
Uses		1,106.2	1,200.2	1,303.6	1,417.4	1,542.4

End	1750	8,326.8	15,576.9	23,567.7	32,373.3	42,075.3


Firm Name		Food N Pak
Your Name		Webster University

Initial Year		2018

Receivables	% of Sales	8.7%
Inventories	% of Sales	10.2%
Payables	% of Sales	6.1%
Other Liabilities	% of Sales	1.8%
Cost of Revenue	% of Sales	63.8%
SGA	% of Sales	16.6%
Interest Rate	% of Debt	0.7%
Tax Rate	% of EBT	20.0%
Dividend	% of NI	0.0%
Discount Rate
Depreciation Life	Years	10
Capital Expenditures (Asset/Sales Ratio)	% of Chg Sales	10.0%

Growth Rate	1	10.0%
	2	10.0%
	3	10.0%
	Terminal	10.0%

Non-recurring	% of Sales	0.0%

Debt Growth	% Growth Rate	0.0%
Debt Reduction	% of O/S Balance	0.0%
Round	Num of places	1

Expert Solution

Enterprise Value = (market capitalization + value of debt + minority interest + preferred shares) – (cash and cash equivalents)
EBITDA = Earnings Before Tax + Interest + Depreciation + Amortization

The question concet of EBITDA multiple approach , explain the concept of EV/ EBITDA should be 7.

EBITDA can be calculated as follows.(Bottom-Up Method)

Net Income
Plus: Taxes
Plus: Interest
Plus: Depreciation & Amortization
Plus: Any adjustments if there

The bottom up approach are the most suitable one as ,all the data is already worked out

New income statement with changes given in questions

	2018	2019	2020	2021
Total Revenue	$ 47,000	$52,640.0	$57,904.0	$61,957.3
Cost of Revenue	$ (30,000)	$ (33,600)	$ (37,632)	$ (42,148)
Gross Profit	$17,000.0	$19,040.0	$20,272.0	$19,809.4
Operating Expenses
Depreciation	$ (900)	$ (1,008)	$ (1,109)	$ (1,186)
S, G & A	$ (7,800)	$ (8,736)	$ (9,610)	$ (10,282)
Non-recurring charge	$ (500)	$ (560)	$ (616)	$ (659)
Operating Income	$7,800.0	$8,736.0	$8,937.6	$7,681.6
Interest Expense	$ (335)	$ (30)	$ (30)	$ (30)
Earnings before income taxes	$7,465.0	$8,705.9	$8,907.5	$7,651.5
Income Taxes	$ (1,493)	$ (1,741)	$ (1,782)	$ (1,530)
Net Income	$5,972.0	$6,964.7	$7,126.0	$6,121.2

Calculation EBITD

	2018	2019	2020	2021
Net Income	$5,972.0	$6,964.7	$7,126.0	$6,121.2
Tax	$ 1,493	$ 1,741	$ 1,782	$ 1,530
Interset	$ 335	$ 30	$ 30	$ 30
Depreciation	$ 900	$ 1,008	$ 1,109	$ 1,186


EBITD	$8,700.0	$9,744.0	$10,046.4	$8,868.0
Year EV (7 multiple)	$60,900.0	$68,208.0	$70,324.8	$62,076.3

Discounted EBITD at 8%	$8,055.6	$8,353.9	$7,975.2	$6,518.3

EV (7 Multiple of Discounted EDITD)	$216,320.31

jeff jeffy answered 3 years ago

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