FMVA Practice Exam Case Study #1

May 2021

Notes
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© Corporate Finance Institute. All rights reserved.
Model Inputs and Assumptions
All Figures in US$000's unless otherwise stated.

Model Inputs and Assumptions

General Assumptions
Transaction Date 6/15/2024
Forecast Start Date 1/1/2021
Fiscal Year-End 12/31/2021
Days Per Year 365

Income and Expense Forecast Assumptions (2021E) 2.50%

Sales Growth 2.50% 2021
Gross Margin 47.50% 47.50%
SG&A Expense 7.50%
Depreciation Expense 8.50%
Capital Expenditures 3.0x

Balance Sheet Forecast Assumptions (2021E)

Accounts Receivable Days Outstanding 36.0
Accounts Payable Days Outstanding 97.0

Valuation Assumptions
Tax Rate 27.50%
EBITDA Exit Multiple 10.0x
Equity Risk Premium 8.5%
Interest Rate 5.5%
 2022 2023 2024 2025 2026 2027 2028 2029
45.00% 42.50% 40.00% 37.50% 35.00% 32.50% 30.00% 27.50%
 2030
25.00%
© Corporate Finance Institute. All rights reserved.
Historical and Forecast Financial Information
All Figures in US$000's unless otherwise stated.

2018A 2019A 2020A

Income Statement
Sales Revenue $50,000 $45,000 $48,000
Cost of Sales ($22,500) ($22,500) ($26,400)
Gross Profit $27,500 $22,500 $21,600

SG&A Expense ($3,750) ($3,375) ($3,600)

Depreciation Expense ($4,250) ($3,825) ($4,080)
Income Before Income Taxes $19,500 $15,300 $13,920
Income Taxes ($5,363) ($4,895) ($4,488)
Net Income $14,138 $10,405 $9,432

Balance Sheet
Assets
Cash & Cash Equivalents $36,388 $35,494 $34,773
Accounts Receivable $5,000 $4,438 $4,734
Total Current Assets $41,388 $39,933 $39,508

Property, Plant & Equipment $23,750 $34,925 $45,845

Total Assets $65,138 $74,858 $85,353

Liabilities
Accounts Payable $6,000 $5,315 $6,378
Total Current Liabilities $6,000 $5,315 $6,378

Long-Term Debt $0 $0 $0
Total Liabilities $6,000 $5,315 $6,378

Shareholders' Equity
Share Capital $45,000 $45,000 $45,000
Retained Earnings $14,138 $24,543 $33,975
Total Shareholders' Equity $59,138 $69,543 $78,975
Total Liabilities and Shareholders' Equity $65,138 $74,858 $85,353
Cash Flow Statement
Operating Activities
Net Income $14,138 $10,405 $9,432
Adjustments For:
Depreciation Expense $4,250 $3,825 $4,080
Changes in Non-Cash Working Capital $0 ($123) $767
Cash Generated From Operating Activities $18,388 $14,107 $14,279

Investing Activities
Additions to Property, Plant & Equipment ($27,000) ($15,000) ($15,000)
Cash (Used For) Investing Activities ($27,000) ($15,000) ($15,000)

Financing Activities
Issuance (Repayment) of Debt $0 $0 $0
Issuance (Buy-back) of Equity $45,000 $0 $0
Cash (Used For) Generated From Financing Activities $45,000 $0 $0

Cash (Used) Generated in the Period $36,388 ($893) ($721)

Cash & Cash Equivalents, Beginning of Period $0 $36,388 $35,494
Cash & Cash Equivalents, End of Period $36,388 $35,494 $34,773

Supporting Schedules
Change in Non-Cash Working Capital
Accounts Receivable $5,000 $4,438 $4,734
Accounts Payable $6,000 $5,315 $6,378
Total Non-Cash Working Capital ($1,000) ($877) ($1,644)
Change in Non-Cash Working Capital ($123) $767

Asset Continuity Schedule

PP&E, Opening Balance $1,000 $23,750 $34,925
Capital Expenditures $27,000 $15,000 $15,000
Depreciation Expense ($4,250) ($3,825) ($4,080)
PP&E, Ending Balance $23,750 $34,925 $45,845

Supplemental Information
EBITDA $23,750 $19,125 $18,000

Current Ratio 6.9x 7.5x 6.2x

Cash Ratio 6.1x 6.7x 5.5x
Margin Impact Ratio 0.28x 0.23x 0.20x
Cash Turnover Ratio 1.4x 1.3x 1.4x
 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E

$49,200 $50,430 $51,691 $52,983 $54,308 $55,665 $57,057 $58,483

($25,830) ($27,736) ($29,722) ($31,790) ($33,942) ($36,182) ($38,513) ($40,938)
$23,370 $22,693 $21,969 $21,193 $20,365 $19,483 $18,543 $17,545

($3,690) ($3,782) ($3,877) ($3,974) ($4,073) ($4,175) ($4,279) ($4,386)

($4,182) ($4,287) ($4,394) ($4,504) ($4,616) ($4,732) ($4,850) ($4,971)
$15,498 $14,625 $13,698 $12,716 $11,676 $10,576 $9,414 $8,188
($4,262) ($4,022) ($3,767) ($3,497) ($3,211) ($2,909) ($2,589) ($2,252)
$11,236 $10,603 $9,931 $9,219 $8,465 $7,668 $6,825 $5,936

$38,319 $41,048 $42,917 $43,880 $43,892 $42,905 $40,867 $37,729

$4,853 $4,974 $5,098 $5,226 $5,356 $5,490 $5,628 $5,768
$43,172 $46,022 $48,015 $49,106 $49,249 $48,395 $46,495 $43,497

$53,903 $62,162 $70,628 $79,306 $88,200 $97,317 $106,662 $116,241

$97,075 $108,185 $118,643 $128,412 $137,449 $145,712 $153,157 $159,738

$6,864 $7,371 $7,899 $8,448 $9,020 $9,616 $10,235 $10,880

$6,864 $7,371 $7,899 $8,448 $9,020 $9,616 $10,235 $10,880

$0 $0 $0 $0 $0 $0 $0 $0
$6,864 $7,371 $7,899 $8,448 $9,020 $9,616 $10,235 $10,880

$45,000 $45,000 $45,000 $45,000 $45,000 $45,000 $45,000 $45,000

$45,211 $55,813 $65,745 $74,964 $83,429 $91,097 $97,922 $103,858
$90,211 $100,813 $110,745 $119,964 $128,429 $136,097 $142,922 $148,858
$97,075 $108,185 $118,643 $128,412 $137,449 $145,712 $153,157 $159,738
 $11,236 $10,603 $9,931 $9,219 $8,465 $7,668 $6,825 $5,936

$4,182 $4,287 $4,394 $4,504 $4,616 $4,732 $4,850 $4,971

$368 $385 $403 $422 $441 $461 $482 $504
$15,786 $15,275 $14,728 $14,145 $13,523 $12,861 $12,157 $11,411

($12,240) ($12,546) ($12,860) ($13,181) ($13,511) ($13,848) ($14,195) ($14,550)

($12,240) ($12,546) ($12,860) ($13,181) ($13,511) ($13,848) ($14,195) ($14,550)

$0 $0 $0 $0 $0 $0 $0 $0
$0 $0 $0 $0 $0 $0 $0 $0
$0 $0 $0 $0 $0 $0 $0 $0

$3,546 $2,729 $1,869 $963 $12 ($988) ($2,037) ($3,139)

$34,773 $38,319 $41,048 $42,917 $43,880 $43,892 $42,905 $40,867
$38,319 $41,048 $42,917 $43,880 $43,892 $42,905 $40,867 $37,729

$4,853 $4,974 $5,098 $5,226 $5,356 $5,490 $5,628 $5,768

$6,864 $7,371 $7,899 $8,448 $9,020 $9,616 $10,235 $10,880
($2,012) ($2,397) ($2,801) ($3,223) ($3,664) ($4,125) ($4,608) ($5,111)
$368 $385 $403 $422 $441 $461 $482 $504

$45,845 $53,903 $62,162 $70,628 $79,306 $88,200 $97,317 $106,662

$12,240 $12,546 $12,860 $13,181 $13,511 $13,848 $14,195 $14,550
($4,182) ($4,287) ($4,394) ($4,504) ($4,616) ($4,732) ($4,850) ($4,971)
$53,903 $62,162 $70,628 $79,306 $88,200 $97,317 $106,662 $116,241

$19,680 $18,911 $18,092 $17,219 $16,292 $15,308 $14,264 $13,159

6.3x 6.2x 6.1x 5.8x 5.5x 5.0x 4.5x 4.0x

 5.6x 5.6x 5.4x 5.2x 4.9x 4.5x 4.0x 3.5x
0.23x 0.21x 0.19x 0.17x 0.16x 0.14x 0.12x 0.10x
1.3x 1.2x 1.2x 1.2x 1.2x 1.3x 1.4x 1.6x
 2029E 2030E

$59,945 $61,444
($43,460) ($46,083)
$16,485 $15,361

($4,496) ($4,608)
($5,095) ($5,223)
$6,894 $5,530
($1,896) ($1,521)
$4,998 $4,009

$33,435 $27,930
$5,912 $6,060
$39,347 $33,990

$126,059 $136,122
$165,406 $170,112

$11,550 $12,247
$11,550 $12,247

$0 $0
$11,550 $12,247

$45,000 $45,000
$108,856 $112,865
$153,856 $157,865
$165,406 $170,112
 $4,998 $4,009

$5,095 $5,223
$526 $549
$10,619 $9,781

($14,913) ($15,286)
($14,913) ($15,286)

$0 $0
$0 $0
$0 $0

($4,294) ($5,505)
$37,729 $33,435
$33,435 $27,930

$5,912 $6,060
$11,550 $12,247
($5,637) ($6,186)
$526 $549

$116,241 $126,059
$14,913 $15,286
($5,095) ($5,223)
$126,059 $136,122

$11,989 $10,753

3.4x 2.8x
 2.9x 2.3x
0.08x 0.07x
1.79x 2.2x
© Corporate Finance Institute. All rights reserved.
Valuation and Return Analysis
All Figures in US$000's unless otherwise stated.

DCF Analysis

Time Periods
Date
Date for NPV (Annual Cash Flows)
Year Fraction

EBITDA $10,753
Terminal Value 10

Unlevered Free Cash Flow

EBITDA
Depreciation
EBIT
Unlevered Taxes
Depreciation
Capital Expenditures
Change in Non-Cash Working Capital
Unlevered Free Cash Flow

Adjusted Unlevered Free Cash Flow

Terminal Value
Total Adjusted Unlevered Free Cash Flow

Net Present Value (NPV)

Present Value of Free Cash Flows
Present Value of Terminal Value
Total Net Present Value (NPV)
Add: Cash
Less: Debt
Equity Value

Investment Analysis

Date
Date for NPV (Annual Cash Flows)
Year Fraction
Unlevered Free Cash Flow
Adjusted Unlevered Free Cash Flow
Terminal Value
Total Adjusted Unlevered Free Cash Flow

Net Present Value (NPV)

Present Value of Free Cash Flows
Present Value of Terminal Value
Total Net Present Value (NPV)
Add: Cash
Less: Debt
Equity Value

Investor IRR
Investment Amount
Adjusted Unlevered Free Cash Flow
Investment Cash Flows
Investor IRR -6.91%

Equity Investment
Adjusted Unlevered Free Cash Flow
Investment Cash Flows
Equity IRR 10.6%
Entry 2021E 2022E 2023E 2024E 2025E 2026E 2027E

6/15/2020 12/31/2021 12/31/2022 12/31/2023 12/31/2024 12/31/2025 12/31/2026 12/31/2027

6/15/2020 12/31/2021 12/31/2022 12/31/2023 12/31/2024 12/31/2025 12/31/2026 12/31/2027
1.5 1.0 1.0 1.0 1.0 1.0 1.0

$19,680 $18,911 $18,092 $17,219 $16,292 $15,308 $14,264

($4,182) ($4,287) ($4,394) ($4,504) ($4,616) ($4,732) ($4,850)
$15,498 $14,625 $13,698 $12,716 $11,676 $10,576 $9,414
$4,262 $4,022 $3,767 $3,497 $3,211 $2,909 $2,589
$4,182 $4,287 $4,394 $4,504 $4,616 $4,732 $4,850
$12,240 $12,546 $12,860 $13,181 $13,511 $13,848 $14,195
$368 $385 $403 $422 $441 $461 $482
$2,810 $1,958 $1,062 $119 ($871) ($1,910) ($3,002)

$0 $4,340 $1,958 $1,062 $119 ($871) ($1,910) ($3,002)

$0 $0 $0 $0 $0 $0 $0 $0
$0 $4,340 $1,958 $1,062 $119 ($871) ($1,910) ($3,002)

-$3,173
$42,122
$38,949
$34,773
$0
$73,723

6/15/2024
6/15/2024 12/31/2024 12/31/2025 12/31/2026 12/31/2027
0.5 1.0 1.0 1.0
 $119 ($871) ($1,910) ($3,002)
$65 ($871) ($1,910) ($3,002)
$0 $0 $0 $0 $0
$0 $65 ($871) ($1,910) ($3,002)

-$13,913
$57,573
$43,660
$50,000
$0
$93,660

($140,490)
$65 ($871) ($1,910) ($3,002)
($140,490) $65 ($871) ($1,910) ($3,002)

30.0% ($42,147)
$65 ($871) ($1,910) ($3,002)
($42,147) $65 ($871) ($1,910) ($3,002)
 General Assumptions
2028E 2029E 2030E Transaction Date
Forecast Start Date
Fiscal Year-End
Days Per Year

12/31/2028 12/31/2029 12/31/2030

12/31/2028 12/31/2029 12/31/2030
1.0 1.0 1.0

$13,159 $11,989 $10,753

($4,971) ($5,095) ($5,223)
$8,188 $6,894 $5,530
$2,252 $1,896 $1,521
$4,971 $5,095 $5,223
$14,550 $14,913 $15,286
$504 $526 $549
($4,146) ($5,346) ($6,603)

($4,146) ($5,346) ($6,603)

$0 $0 $107,527
($4,146) ($5,346) $100,924

12/31/2028 12/31/2029 12/31/2030

1.0 1.0 1.0
($4,146) ($5,346) ($6,603)
($4,146) ($5,346) ($6,603)
$0 $0 $107,527
($4,146) ($5,346) $100,924

($4,146) ($5,346) $100,924

($4,146) ($5,346) $100,924

($4,146) ($5,346) $100,924

($4,146) ($5,346) $100,924
 6/15/2020
1/1/2021
12/31/2021
365
© Corporate Finance Institute. All rights reserved.
Weighted-Average Cost of Capital (WACC)
All Figures in US$000's unless otherwise stated.

Comparable Companies Beta

Unlevered
Company Levered Beta Debt Equity Debt / Equity Tax Rate Beta
Company A 1.88 $550 $800 68.8% 26.5% 1.25
Company B 1.13 $200 $900 22.2% 30.0% 0.98
Company C 1.46 $355 $950 37.4% 28.0% 1.15
Company D 0.92 $100 $850 11.8% 32.5% 0.85
Company E 1.20 $300 $1,200 25.0% 35.0% 1.03
Median 1.1974 25.0% 1.03
Company XYZ WACC Calculation

Capital Structure
Amount %
Current Debt $30,000 31.3%
Current Equity $66,000 68.8%
Total $96,000 100%
Debt / Equity 0.4545454545

Cost of Debt
Cost of Debt 5.5%
Tax Rate 27.5%
After-Tax Cost of Debt 4.0%

Cost of Equity
Risk-Free Rate 2.5%
Equity Risk Premium 8.5%
Levered Beta 1.37
Cost of Equity 14.1%

WACC 11.0%