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Abbey Taylor, CFA, has been directed to determine the value of Sundanci’s stock using the FCFE...

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

Solutions

Expert Solution

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

ekkarill92 answered 2 years ago
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