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Following are the inputs of ABC Corporation. Year 2015 2016 2017 2018 Growth Rate 8% 8%...

Following are the inputs of ABC Corporation.

Year 2015 2016 2017 2018
Growth Rate 8% 8% 8% 4%
EBIT (1-t) 200 220 240 130
Capex 100 110 120 50
Cost of Equity 10% 10% 10% 10%
Cost of Debt 6% 6% 6% 6%
Debt Ratio 20% 20% 20% 20%
Return on capital 25% 25% 25% 15%

Please calculate value of ABC corporation using discounted cash flow method.

Please provide excel along with formula used

Solutions

Expert Solution

Please find below spreadsheet for calculation and answer. Formula reference also provided for better understanding -

Formula reference -

Capex refers to capital expenditure such buying machinery, buildings etc. It not considered while calculating Earning for the year but to calculate Free cash flow after tax, it must be subtracted from cash earning after tax {EBIT(1-t)}.

Please note - Growth rate and return on capital to be ignored as no special instruction provided in question. please comment if need any further explanation.

C16 ABC Corporation 1 2015 200 100 2016 220 110 -D4+D5 0.1 0.06 0.2 2017 240 120 -E4+E5 0.1 0.06 0.2 2018 130 50 -F4+F5 0.1 0.06 0.2 YEAR 4 EBIT(1-t) Capex 6 Free cash flow after tax (FCF) C4+C5 cost of equity cost of debt debt ratio equity ratio 0.1 0.06 0.2 1-C9 11 WACC (cost of capital) 12 13 PVF (Discount factor) 14 15 16 Value of ABC corporationSUM(C14:F14) 17 -1/(1+C11)^C2-1/(1+D11)AD2-1/(1+E11)^E2-1/(1+F11)AF2 C6 C13 D6 D13 -E6*E13 -F6*F13 Present value of FCF Sheet1 Sheet2 Sheet3 Sheet4 Sheet5 Sheet6 Sheet (2) Sheet7

jeff jeffy answered 1 year ago
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