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M&a Case Study Solution

The document provides financial projections for a business over 6 years including revenue, taxes, changes in working capital, capital spending, and free cash flow. It also lists assumptions for pretax operating income, annual change in working capital, capital spending over depreciation, tax rate, growth rates, cost of equity, risk free rate, cost of debt, beta, debt to equity ratio, and target debt to equity ratio. The total discounted free cash flow over the projection period is $2,776,675.47.

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Soufiane Eddiani
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319 views3 pages

M&a Case Study Solution

The document provides financial projections for a business over 6 years including revenue, taxes, changes in working capital, capital spending, and free cash flow. It also lists assumptions for pretax operating income, annual change in working capital, capital spending over depreciation, tax rate, growth rates, cost of equity, risk free rate, cost of debt, beta, debt to equity ratio, and target debt to equity ratio. The total discounted free cash flow over the projection period is $2,776,675.47.

Uploaded by

Soufiane Eddiani
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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Group : Jalila YOUNSI - Soufiane Eddiani - Naveen NANDAGUDI JAGADISH - Liam Bry - Manan Singla

Assumptions
Pretax operating income 300000
Annual change in working capital 20000
Capital spending over depreciation 15000
Tax Rate 40%
Growth Rate last 5 years 4%
Growth rate beyond second year 6% Cost of equity
10 year bond rate (Risk free rate) 5% Post tax cost of debt
Equity-risk premium 5.50% WACC
Business specific risk 6%
Liquidity-risk premium 15%
Value of control premium 10%
Pretax cost of borrowing 7%
Beta 2.0
Debt to equity ratio 1.5
Target debt to equity ratio 1

Years 1 2 3
Revenue 312,000.00 324,480.00 343,948.80
Tax 124,800.00 129,792.00 137,579.52
Change in Working Capital 20,800.00 21,632.00 22,929.92
Capital Spending 15,600.00 16,224.00 17,197.44

Free Cash Flow 150,800.00 156,832.00 166,241.92

Discounted Free Cash Flow 136,347.20 128,210.75 122,878.29

Total Discounted FCF 618,073.37


Discounted Terminal Value at year 6 2,351,633.01
Firm Value 2,776,675.47

Answers

a) What is free cash flow to the firm in year 1? 150,800.00


b) What is free cash flow to the firm in year 2? 156,832.00
c) What is the firm’s cost of equity? 17%
d) What is the firm’s after-tax cost of debt? 4.2%
e) What is the firm’s target debt-to-total capital ratio? 0.5
f) What is the weighted average cost of capital? 10.60%
g) What is the business worth? 2,776,675.47
Manan Singla

st of equity 17%
st tax cost of debt 4.2%
10.60%

4 5 6
364,585.73 386,460.87 409,648.52
145,834.29 154,584.35 163,859.41
24,305.72 25,764.06 27,309.90
18,229.29 19,323.04 20,482.43

176,216.44 186,789.42 197,996.79

117,767.62 112,869.51 108,175.12

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