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RollTide Corp is considering acquiring Tiger Inc and you are on the team that is valuing...

RollTide Corp is considering acquiring Tiger Inc and you are on the

team that is valuing the potential target firm. Tiger Inc's revenue growth rate is 10.2%, its COGS is 58% of sales, S&;A is 22% of sales, and NWC is 25% of sales. The forecast period for the valuation is 5 years, after which your team will apply a steady state growth rate is 6%. You are using a WACC rate of 13.5% and a tax rate is 32%. Initial year zero revenue is $10,000. Depreciation is $1350 per year, CAPEX is $1300 per year. The forecast period is 5 years.


1.    1. What are free cash flows per year? (10 pts)
2.    2. What is the terminal value (steady state value)? (3 points)
3.    3. What is Enterprise Value for this firm? (2 pts)
4.    4. The firm has cash of $550, debt of $2000, and preferred stock of $750. What is the value of equity? (3 pts)
5.    5. If there are 120 shares outstanding, what is stock price? (2pts)

Solutions

Expert Solution

1.

Particulars 0 1 2 3 4 5 6
Revenue (A) 10000 11020 12144.04 13382.73 14747.77 16252.04 17227.17
COGS ( B = A*0.58) 5800 6391.6 7043.543 7761.985 8553.707 9426.185 9991.756
Gross Profit ( C = A-B) 4200 4628.4 5100.497 5620.747 6194.064 6825.858 7235.41
Depreciation (D) 1350 1350 1350 1350 1350 1350 1350
S&A (E = A*0.22) 2200 2424.4 2671.689 2944.201 3244.51 3575.45 3789.977
Profit before Tax ( F = C -D-E) 650 854 1078.808 1326.546 1599.554 1900.409 2095.433
Tax (G = F * 0.32) 208 273.28 345.2186 424.4949 511.8573 608.1308 670.5386
Cashflow ( H = F -G + D) 1792 1930.72 2083.589 2252.052 2437.697 2642.278 2774.895
NWC 2500 2755 3036.01 3345.683 3686.943 4063.011 4306.791
Change in NWC (I) 255 281.01 309.673 341.2597 376.0682 243.7807
Capex ( J) 1300 1300 1300 1300 1300 1300 1300
Free Cah flow (K = H -I-J) 375.72 502.5794 642.3785 796.4372 966.2097 1231.114
Discounting Factor (L =1/(1 + r)^n 0.881057 0.776262 0.683931 0.602583 0.53091 0.467762
Present value 331.0308 390.1333 439.3427 479.9191 512.9702 575.8682

2.

Terminal value = FCFF 6 / ( wacc - growth rate ) = 575..87 / ( 0.1350 -0.06) = 7678.24

3.

Enterprise value of the firm = 331.03 + 390.13 + 439.34 + 479.92 + 512.97 + 7678.24 / 1.135^5

= 6229.85

4.

Value of equity = Enterprise value - preference equity - debt value = 6229.85 - 2000 - 750 = 3479.85

5.

Stock price = value of equity / no of shares = 3479.85 / 120 = 29

jeff jeffy answered 1 year ago
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