Question

In: Finance

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

  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

Solutions

Expert Solution

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

Related Solutions

Using the following information, estimate the total value of this privately held company. Estimates of Year...
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...
Value preposition for a insurance company has to be privately held what way do you add...
Value preposition for a insurance company has to be privately held what way do you add value over your competitors....
You have been asked to value the assets of a privately held consulting company. You can...
You have been asked to value the assets of a privately held consulting company. You can use the capital asset pricing model to estimate the equity paid us for every firm in this industry and then compute the average equity beta. You noticed that firms in this industry have significantly different capital structures. You told your boss that this average equity beta is the appropriate beta to use for the valuation of the consulting companies assets. Should your boss agree...
A small privately held corporation is trying to raise money for a business expansion. The total...
A small privately held corporation is trying to raise money for a business expansion. The total cost of the expansion is $5,000,000. The expected return on assets before taxes (EBIT) for the business expansion project based upon the expected probabilities of returns are .2 of an 8% return, .5 of a 10% return and .3 of a 12% return. The privately held corporation’s owners are considering two options which involve obtaining one of two types of loans from an area...
18. Discuss alternative ways of measuring value of privately held corporations.
18. Discuss alternative ways of measuring value of privately held corporations.
You are the CEO of a privately held company. Your company has a project regarding the...
You are the CEO of a privately held company. Your company has a project regarding the development and marketing of a new product. The project requires an initial investment (at t=0) of $100m, and will generate a payoff only during the following period, t=1. The payoff at t=1 is random, and depends on your marketing strategy at that time. In particular, you will be able to follow either a conservative strategy (strategy C) or an aggressive strategy (strategy A). Payoffs...
The owners of CSC Inc., a privately held company, are considering a public offering of the...
The owners of CSC Inc., a privately held company, are considering a public offering of the company’s common stock as a means of acquiring additional funds. Prior to making a decision about a public offering, the owners want to have a lengthy conversation with you, CSC’s chief financial officer. You have already informed the owners of the reporting requirements of the Securities and Exchange Commission, including the necessity for audited financial statements. Now the owners wish to discuss with you...
Up and Coming, Inc. (“UCI” or the “Company) is a privately held provider of canoes and...
Up and Coming, Inc. (“UCI” or the “Company) is a privately held provider of canoes and kayaks for competition as well as recreation. In September 2018, the Company secured financing of $40 million from an independent investor, Daddy Warbucks, Inc. (DWI) in exchange for the following: • $30 million for the issue of a new series of its Series E Preferred Stock (“Preferred Stock”), and • $10 million of the sale of its shares of common stock (“Common Stock”). The...
The Value of Enterprise Systems Summit Electric Supply is a privately held, independent wholesale distributor of...
The Value of Enterprise Systems Summit Electric Supply is a privately held, independent wholesale distributor of industrial electrical equipment and supplies. The company is headquartered in Albuquerque, New Mexico. Summit is one of the top whole- sale distributors of industrial electrical equipment and supplies in the United States, with 650 employees and nearly $469.9 million sales in 2017. Summit operates in four states and has a global export division based in Houston, a marine division based in New Orleans, and...
Assume you are engaged to audit XYZ corp. They are a privately held construction company with...
Assume you are engaged to audit XYZ corp. They are a privately held construction company with two shareholders. They are seeking a bank loan of $1,000,000 for expansion. All of their construction projects are of similar nature and are in the state of California. The shareholders place great emphasis on the quality of their financial statements and adherence to ethical business practices. One of the shareholders was a former auditor and places great emphasis on having robust and effective internal...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT