Question

1. Using the following information, estimate the total value of this privately held company.

Estimates of Year 1 (next year) financial performance (Unit: $ million)
Revenue	900
Costs of goods sold	100
Selling, general and administrative expenses including R&D	200
Depreciation	50
Property and equipment	1100
Working capital	150
Current (Year 0) financial data (Unit: $ million)
Property and equipment	950
Working capital	110
Other information for valuation
Operating tax rate	21%
The estimated growth rate of cash flows (Assume that this growth rate is constant)	6%
This company has no debt.
Assume that 14% is the required return on this company’s assets.

Answer: $_____________ million

Answer 1

1]	The first step is to find the FCF of Year 1:
	Revenue	$            900.00	million
	-COGS	$            100.00	million
	-SG&A	$            200.00	million
	-Depreciation	$              50.00	million
	=EBIT	$            550.00	million
	-Tax at 21%	$            110.00	million
	=NOPAT	$            440.00	million
	+Depreciation	$              50.00	million
	=OCF	$            490.00	million
	-Capital expenditure [1100-950]	$            150.00	million
	-Change in NWC [150-110]	$              40.00	million
	=FCF for Year 1	$            300.00	million
2]	As the FCF grows at the constant rate of 5 for ever, it
	is a growing perpetuity.
	The total value of this privately held company = PV of the growing perptual FCF = 300/(0.14-0.06) =	$        3,750.00	million
3]	Answer: $3,750 million