QUIZ- DCF

CASE PROBLEM – 35 Points

Coffee Project, Inc. started its new product line amidst the COVID-19 pandemic. Sales are forecast to grow for four years
before leveling off. However, a change in depreciation after the fourth year affects taxes. Hence, the annual cash
estimate changes each year until the fifth year and then remains constant. Therefore you only need to estimate the first
five years, understanding that for a more extended forecast, we just need to repeat the fifth year as many times as we
like.

The following data are available:

Revenue

Unit price ₱600

Year Project Sales in Units

2021 (1st year) 200
2022 600
2023 1200
2024 (4th year) 1500

Cost

Coffee Project, Inc. is experienced in making coffees and feels that a cost ratio of 60% will be appropriate for the new
line

Selling, General, and Administrative (SG&A) expense

SG&A is ₱120,000 annually

Depreciation

Depreciation is in two separate pieces because equipment and buildings are depreciated over different lives. Equipment
with a book value of ₱200,000 can be written off over four years, while the building with a book value of ₱60,000 has
to be amortized over 39 years.

Miscellaneous expenses

Calculated at 2% of Revenues

Loss in Old line

3% of the new gross margin forecast will be recognized as Loss on Old Line

Taxes

The tax is 34% of Earnings before Taxes.

Working Capital

Receivables – Coffee Project's receivable are collected in 30 days, meaning there is one month of uncollected revenue in
accounts receivable (A/R) all the time. The average level during each year is one-twelfth (1/12). Year-end balance is the
average of the two consecutive years' average A/R. The calculations for the year-end balances of the first two years are
shown below.

Year Revenue Average A/R Year-End A/R

2021 (1ST YEAR) 120,000 10,000 20,000
((10000+20000)/2)
2022 (2ND YEAR) 360,000 30,000 45000
2023 720,000 60,000

Inventory – is estimated as one month's cost of goods sold, so take the annual cost figure divided by 12 except in the
first year where a ₱12,000 level has been explicitly assumed.

Payables – are 25% of Inventory

Capital Structure, cost of debt, cost of equity

Cost of Weights (Capital Structure

Debt *9.52% 35%
Equity 12% 65%
*before tax

Perpetural Growth Rate 3%

EV/EBITDA Mulltiple 15.0x
Transaction Date 1/1/2021
Fiscal Year End 12/31/2021
Current Price 25.00
Shares Outstanding 80,000
Debt 30,000
Cash 200,000

Requirements:

1. Forecast the annual free cash flow from 2021 to 2025 (create a new sheet for FCF Computation)
2. Compute for the Weighted Average Cost of Capital (create a new sheet for WACC Computation)
3. Compute for the net changes in the net working capital for each of the years from 2021 to 2025
(create a new sheet for changes in NWC Computation).
4. Create a bar graph showing the annual net cash flows for six years (in the same sheet with #1 requirement)
5. Compute for Intrinsic Value (Enterprise Value, Equity Value), Market Value (Enterprise Value, Equity Value), IRR,
Upside (create a new sheet for this Computation)
6. Create a blank sheet and rename it with your LAST NAME only

Upload the excel file in OpenLms.