In: Accounting
Abbey Taylor, CFA, has been directed to determine the value of Sundanci’s stock using the FCFE valuation model. Taylor believes that Sundanci’s FCFE will grow at 12% for years 2020, 2021, 2022, 2023, and 2024, and 5% thereafter. Capital expenditures, depreciation, and working capital are all expected to increase proportionately with FCFE. Assume that the corporate tax rate is 30 percent. Using the data from Table 1, calculate the value of a share of Sundanci stock at the end of year 2019 based on the two-stage FCFE valuation model
2018 | 2019 | |
Income Statement | ||
Revenue | 624.000 | 746.000 |
Tot Op Costs | 368.000 | 460.000 |
Depreciation | 35.000 | 48.000 |
EBIT | 221.000 | 238.000 |
Interest | 10.000 | 9.000 |
Taxes | 63.300 | 68.700 |
Net Income | 147.700 | 160.300 |
Dividends | 29.540 | 32.060 |
EPS | 1.758 | 1.670 |
Div PS | 0.352 | 0.334 |
Com shares Outs | 84.000 | 96.000 |
Balance Sheet | ||
Current Assets | 246.000 | 384.000 |
Net PPE | 629.000 | 748.000 |
Total Assets | 875.000 | 1132.000 |
Current Liabilities | 86.000 | 141.000 |
Long-term Debt | 205.000 | 178.000 |
Total Liabilities | 291.000 | 319.000 |
Shareholder's equity | 584.000 | 813.000 |
Total L&E | 875.000 | 1132.000 |
Capital Expenditures | 56.000 | 68.000 |
Other Info | ||
Existing market Value of Debt | 185.000 | 169.000 |
Selected Financial Information | ||
Required Rate of ROE | 0.14 | |
WACC | 0.102 | |
Growth Rate of Industry | 0.13 | |
Industry P/E ratio | 26 |
Determination of Forecasted Free Cash flow of the Sundanci’s | |||||||
Particulars | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | Terminal year |
Revenue (12% growth). | 746.00 | 835.52 | 935.78 | 1,048.08 | 1,173.85 | 1,314.71 | 1,380.44 |
EBIT (12% growth). | 238.00 | 266.56 | 298.55 | 334.37 | 374.50 | 419.44 | 440.41 |
a. EAT (12% growth). | 160.30 | 179.54 | 201.08 | 225.21 | 252.24 | 282.50 | 296.63 |
b. Depreciation (12% growth). | 48.00 | 53.76 | 60.21 | 67.44 | 75.53 | 84.59 | 88.82 |
(a+b) | 208.30 | 233.30 | 261.29 | 292.65 | 327.76 | 367.10 | 385.45 |
Less:-Capital Expenditure (12% growth). | 68.00 | 76.16 | 85.30 | 95.54 | 107.00 | 119.84 | 125.83 |
Less:-Change in Working capital (WN) | 83.00 | 29.16 | 32.66 | 36.58 | 40.97 | 45.88 | 21.41 |
FCFF | 57.30 | 127.98 | 143.33 | 160.53 | 179.80 | 201.37 | 238.21 |
Working Notes:- | |||||||
2018 WC = 246 - 86 = 160 | |||||||
Current Assest - Current Liabilities | =384 - 141 | ||||||
Working capital employed during the year | 243 | 272.16 | 304.82 | 341.40 | 382.37 | 428.25 | 449.66 |
Change in Working capital | 83 | 29.16 | 32.66 | 36.58 | 40.97 | 45.88 | 21.41 |
Present Value of FCFF | |||
Year | FCFF | PV @ 14% | Present value of cash flow |
2019 | 57.3 | 1 | 57.3 |
2020 | 127.98 | 0.8772 | 112.26 |
2021 | 143.33 | 0.7695 | 110.29 |
2022 | 160.53 | 0.675 | 108.36 |
2023 | 179.80 | 0.5921 | 106.46 |
2024 | 201.37 | 0.5194 | 104.59 |
Present Value of FCFF | 599.27 | ||
Terminal Cash flow | |||
= FCFF / WACC - g | |||
= 238.21 | |||
.102-.05 = | 4580.96 | ||
Present value of terminal cash flow = | |||
= 4580.96 * 1 | = 4580.96*.5193 | ||
(1.14)^6 | 2378.89 | ||
Value of the firm = 2379.35+599.27 = | 2978.16 | ||
Less Value of Debt = | 169.00 | ||
Value of Equity | 2809.16 | ||
No of shares given | 96 | ||
Value per share = value of equity/no of shares | 29.26 |