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Consider recent financials for Ellie's Essentials LLC: Balance Sheet 2018 2017 Current Assets $11,438.00 $10,000.00 Net...

Consider recent financials for Ellie's Essentials LLC:

Balance Sheet

2018 2017
Current Assets $11,438.00 $10,000.00
Net PPE $31,000.00 $30,000.00
Total Assets $42,438.00 $40,000.00
Current Liabilities $8,736.00 $8,000.00
Long-term debt $12,728.00 $12,000.00
Total Liabilities $21,464.00 $20,000.00
Shareholder Equity $20,974.00 $20,000.00
Liabilities and Equity $42,438.00 $40,000.00
Income Statement 2018 2017
SALES $11,000.00 $10,000.00
COGS $4,400.00 $4,000.00
GROSS PROFIT $6,600.00 $6,000.00
S&A $1,100.00 $1,000.00
Depreciation $550.00 $500.00
EBIT $4,950.00 $4,500.00
INTEREST $1,272.00 $1,200.00
EBT $3,678.00 $3,300.00
TAXES (36.00%) $1,324.08 $1,188.00
NET INCOME $2,353.92 $2,112.00


Going forward, analysts have forecasted the following free cash flows: $2,600.00 in 2019, and $2,600.00 in 2020. After that point, analysts expect free cash flows to grow at 3.00%. The firm has no short-term debt or preferred stock, and there are 1,000 shares outstanding. The firm's cost of capital is 10.00%.

You are trying to estimate the value of Doc McRuffins Incorporated. It is a rival firm to Ellie's Essentials, but not publicly traded. You do know that Doc McRuffins has an EBITDA of $4,750 for 2018. Using multiples, what is a rough estimate for the enterprise value of Doc McRuffins

Solutions

Expert Solution

Valuation of Ellie's Essentials LLC
Year Free Cash Flows P.V. Factor Present Value ($ Million)
Remarks Cash Flow ($ ) [@10%] [Cash Flow*P.V. Factor]
2019 2600.00 0.9091 2363.66
2020 2600.00 0.8264 2148.64
Continuing value at 2020 year end As per working Note 1 38257.14 0.8264 31615.70
Value of Firm at 2018 36128.00
Valuation of Doc McRuffins
Particulars Amount ($)
EBIDTA of Ellie's Essentials LLC 5500
Value of Ellie's Essentials LLC 36128
Value to EBIDTA Multiple [36128/5500] 6.5687
EBIDTA of Doc McRuffins 4750.00
Value of Doc McRuffins [EBIDTA*Value to EBIDTA]
4750*6.5687
31201.46
Working Note 1
Continuing value at the end of 2020
= Free Cash flow at end of 2021
WACC-Growth Rate
= 2600*1.03
10.00%-3.00%
= 2678
7.00%
= $ 38257.1429 milion
Working Note 2
EBIDTA of Ellie's Essentials LLC
Sales 11000
COGS 4400
Gross Profit 6600
S&A 1100
EBIDTA 5500

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