FCFF Calculation and Valuation

Standard

Part A

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Sales Growth 102.22% 19.50% 6.50% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00%
Operating Margin (EBIT/Sales) 49.39% 50.93% 50.91% 49.92% 48.97% 47.93% 46.81% 37.95% 35.50%
Depreciation 3,424 3,508 3,533 3,558 3,583 3,608 3,633 3,658 3,683
Capital Expenditure 1675 500 500 500 500 500 500 500 500
Investment in NWC (% of additional sales amount) 20% 10% 10% 10% 10% 10% 5% 5% 5%
Year 0 1 2 3 4 5 6 7 8 9
Sales      14,833.34 29,995.99    35,845.20    38,175.14 40,083.90 42,088.09 44,192.50 46,402.12 48,722.23    51,158.34
EBIT 14,815.02    18,255.96    19,434.96 20,009.88 20,610.54 21,181.46 21,720.83 18,490.09    18,161.21
After-tax Operating Income    9,629.76    11,866.38    12,632.73 13,006.42 13,396.85 13,767.95 14,118.54 12,018.56    11,804.79
Add: Depreciation    3,424.00      3,508.00      3,533.00    3,558.00    3,583.00    3,608.00    3,633.00    3,658.00      3,683.00
Less: Investment in Net Working Capital    3,032.53        584.92        232.99      190.88      200.42      210.44      110.48      116.01        121.81
Less: Investment in Fixed Assets    1,675.00        500.00        500.00      500.00      500.00      500.00      500.00      500.00        500.00
FCFF    8,346.23    14,289.45    15,432.73 15,873.55 16,279.43 16,665.51 17,141.06 15,060.55    14,865.98
126,703.58
Discounted Value of FCFF $7,252.24 $10,788.95 $10,124.84 $9,049.01 $8,063.96 $7,173.14 $6,410.77 $4,894.35 $4,197.88
FCFF Valuation
PV of FCFF (year 1-9) $67,955.13
PV of terminal value $35,778.72
Value of firm’s operating assets $103,733.86
Add: cash 3839.00
Less: Debt      37,490.00
Value of Common Equity 70082.86
Fair Price per share            33.37
Calculation of WACC
MV Weight A-T Cost
Equity      48,132.00 0.58278948 20.300%
Debt      34,457.00 0.41721052 7.800%
Total Market Value of Long-term Capital      82,589.00          1.00 15.085%
Number of Shares (millions) 2,100
Beta (historical) 1.15
Market Price (December 31, 2011) 22.92
Interest rate on LT debt 12%
Tax rate 35%
Terminal growth rate 3%
Risk-free rate 11.50%
Market Premium 8%
Adjusted Beta 1.10
Cash 3839.00
Debt 37490
Sales 14,833.34

 

Part B I

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Sales Growth 102.22% 19.50% 6.50% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00%
Operating Margin (EBIT/Sales) 49.39% 50.93% 50.91% 49.92% 48.97% 47.93% 46.81% 37.95% 35.50%
Depreciation 3,424 3,508 3,533 3,558 3,583 3,608 3,633 3,658 3,683
Capital Expenditure 1675 500 500 500 500 500 500 500 500
Investment in NWC (% of additional sales amount) 20% 10% 10% 10% 10% 10% 5% 5% 5%
Year 0 1 2 3 4 5 6 7 8 9
Sales      14,833.34        29,995.99      35,845.20      38,175.14        40,083.90        42,088.09        44,192.50        46,402.12      48,722.23                  51,158.34
EBIT      9,150.62        14,815.02      18,255.96      19,434.96        20,009.88        20,610.54        21,181.46        21,720.83      18,490.09                  18,161.21
After-tax Operating Income      5,947.90          9,629.76      11,866.38      12,632.73        13,006.42        13,396.85        13,767.95        14,118.54      12,018.56                  11,804.79
Add: Depreciation          746.38          3,424.00        3,508.00        3,533.00          3,558.00          3,583.00        3,608.00          3,633.00        3,658.00                    3,683.00
Less: Investment in Net Working Capital          3,032.53          584.92          232.99            190.88            200.42            210.44            110.48          116.01                      121.81
Less: Investment in Fixed Assets          1,675.00          500.00          500.00            500.00            500.00            500.00            500.00          500.00                      500.00
FCFF          8,346.23      14,289.45      15,432.73        15,873.55        16,279.43        16,665.51        17,141.06      15,060.55                  14,865.98
                 98,548.96    106,601.22    115,884.25    126,703.58    139,475.01    154,779.22    173,452.60    196,745.32    226,613.38    266,298.61    321,592.98
Discounted Value of FCFF $7,252.24 $10,788.95 $10,124.84 $9,049.01 $8,063.96 $7,173.14 $6,410.77 $4,894.35 $4,197.88
FCFF Valuation
PV of FCFF (year 1-9) $67,955.13
PV of terminal value $27,828.39 $30,102.19 $32,723.55 $35,778.72 $39,385.14 $43,706.76 $48,979.77 $55,557.20 $63,991.39 $75,197.75 $90,811.85
Value of firm’s operating assets $95,783.52 $98,057.33 $100,678.68 $103,733.86 $107,340.27 $111,661.89 $116,934.91 $123,512.34 $131,946.52 $143,152.89 $158,766.98
Add: cash      3,839.00          3,839.00        3,839.00        3,839.00          3,839.00          3,839.00        3,839.00          3,839.00        3,839.00                    3,839.00      3,839.00
Less: Debt      37,490.00        37,490.00      37,490.00      37,490.00        37,490.00        37,490.00        37,490.00        37,490.00      37,490.00                  37,490.00      37,490.00
Value of Common Equity 62132.52 64406.33 67027.68 70082.86 73689.27 78010.89 83283.91 89861.34 98295.52 109501.89 125115.98
Fair Price per share            29.59              30.67            31.92            33.37              35.09              37.15            39.66              42.79            46.81                        52.14            59.58
Calculation of WACC
MV Weight A-T Cost
Equity      48,132.00 0.582789476 20.300%
Debt      34,457.00 0.417210524 7.800%
Total Market Value of Long-term Capital      82,589.00                1.00 15.085%
Number of Shares (millions) 2,100
Beta (historical) 1.15
Market Price (December 31, 2011) 22.92
Interest rate on LT debt 12%
Tax rate 35%
Terminal growth rate 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
Risk-free rate 11.50%
Market Premium 8%
Adjusted Beta 1.10
Cash 3839.00
Debt 37490
Sales 14,833.34

 

Part B II

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Sales Growth 102.22% 19.50% 6.50% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00%
Operating Margin (EBIT/Sales) 49.39% 50.93% 50.91% 49.92% 48.97% 47.93% 46.81% 37.95% 35.50%
Depreciation 3,424 3,508 3,533 3,558 3,583 3,608 3,633 3,658 3,683
Capital Expenditure 1675 500 500 500 500 500 500 500 500
Investment in NWC (% of additional sales amount) 20% 10% 10% 10% 10% 10% 5% 5% 5%
Year 0 1 2 3 4 5 6 7 8 9
Sales        14,833.34    29,995.99    35,845.20    38,175.14    40,083.90    42,088.09    44,192.50    46,402.12    48,722.23    51,158.34
EBIT    14,815.02    18,255.96    19,434.96    20,009.88    20,610.54    21,181.46    21,720.83    18,490.09    18,161.21
After-tax Operating Income      9,629.76    11,866.38    12,632.73    13,006.42    13,396.85    13,767.95    14,118.54    12,018.56    11,804.79
Add: Depreciation 3,424 3,508 3,533 3,558 3,583 3,608 3,633 3,658 3,683
Less: Investment in Net Working Capital      3,032.53        584.92        232.99        190.88        200.42        210.44        110.48        116.01        121.81
Less: Investment in Fixed Assets 1675 500 500 500 500 500 500 500 500
FCFF      8,346.23    14,289.45    15,432.73    15,873.55    16,279.43    16,665.51    17,141.06    15,060.55    14,865.98
126,703.58 184,554.02 172,441.19 161,820.44 152,432.06 144,073.32 136,583.64 129,834.19 123,720.39 118,156.48 113,071.48 108,406.09
Discounted Value of FCFF $7,252.24 $10,788.95 $10,124.84 $9,049.01 $8,063.96 $7,173.14 $6,410.77 $4,894.35 $4,197.88
FCFF Valuation
PV of FCFF (year 1-9) $67,955.13
PV of terminal value $35,778.72 $70,433.88 $62,789.27 $56,230.27 $50,560.40 $45,626.69 $41,308.37 $37,508.90 $34,150.18 $31,168.48 $28,511.24 $26,134.82
Value of firm’s operating assets $103,733.86 $138,389.01 $130,744.40 $124,185.40 $118,515.53 $113,581.82 $109,263.51 $105,464.03 $102,105.32 $99,123.61 $96,466.38 $94,089.95
Add: cash          3,839.00      3,839.00      3,839.00      3,839.00      3,839.00      3,839.00      3,839.00      3,839.00      3,839.00      3,839.00      3,839.00    3,839.00
Less: Debt        37,490.00    37,490.00    37,490.00    37,490.00    37,490.00    37,490.00    37,490.00    37,490.00    37,490.00    37,490.00    37,490.00    37,490.00
Value of Common Equity 70082.86 104738.01 97093.40 90534.40 84864.53 79930.82 75612.51 71813.03 68454.32 65472.61 62815.38 60438.95
Fair Price per share              33.37          49.88          46.23          43.11          40.41          38.06          36.01          34.20          32.60          31.18          29.91        28.78
Calculation of WACC
MV Weight A-T Cost 5 6 7 8 9 10 11 12 13 14 15
Equity        48,132.00 0.582789476 20.300% 13.800% 14.800% 15.800% 16.800% 17.800% 18.800% 19.800% 20.800% 21.800% 22.800% 23.800%
Debt        34,457.00 0.417210524 7.800%
Total Market Value of Long-term Capital        82,589.00          1.00 15.085% 11.297% 11.880% 12.462% 13.045% 13.628% 14.211% 14.793% 15.376% 15.959% 16.542% 17.125%
Number of Shares (millions) 2,100
Beta (historical) 1.15
Market Price (December 31, 2011) 22.92
Interest rate on LT debt 12%
Tax rate 35%
Terminal growth rate 3%
Risk-free rate 11.50% 5.00% 6.00% 7.00% 8.00% 9.00% 10.00% 11.00% 12.00% 13.00% 14.00% 15.00%
Market Premium 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8%
Adjusted Beta 1.10 1.10 1.10 1.10 1.10 1.10 1.10 1.10 1.10 1.10 1.10 1.10
Cash 3839.00
Debt 37490
Sales 14,833.34

 

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