Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

An companyhas sales of $50 million growing at 25% YoY with EBITDA margins at 20%. It secures a JV in Year 3 with additional business

An companyhas sales of $50 million growing at 25% YoY with EBITDA margins at 20%. It secures a JV in Year 3 with additional business of $20 million at EBITDA of 12.5% which linearly scales up to $50 million in Year 6 (linear scaling implies Revenue Yr-3=20, Yr-4=30). Capex required for normal growth of the firm is 7.5% of sales and Capex required for expansion at time of JV is $4 million (after JV year capex for JV revenue will be 7.5% of JV sales). The model should use debt, retained earnings to grow the firm.The current debt ratio of the firm is 2:1 with average cash conversion cycle of 90 days and payment terms with debtor and creditors at 60 days. New Capex should be done at current debt equity ratio. For current year inventory = 6mn, receivables = 8 mn, payables = 5 mn and retained earning = 9mn, Fixed Asset, Net & Gross = 15mn and Cash = 3mn. Tax rate for the company is 30%, Depreciation rate is 10%, Interest Expense Rate is 10% (depreciation and interest to be calculated on average of current and previous year) and Interest Income Rate is 5%(interst income on beginning of period cash). Value the firm using both methods DCF and Relative. For DCF Valuation assume weights of equity and debt based on current book value. Risk free return in the economy is 7%, market risk premium is 7% and Beta of comparable company is 0.5. Company goes in maturity stage from year 7 onwards with growth at 5% forever. For relative valuation use P/E as valuation metric. What would be the value of the firm in year 6 at PE of 15 ? What is the value of the firm today at 1 year forward PE 10 ?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Legal Environment Today Summarized Case Edition

Authors: Roger LeRoy Miller

8th Edition

130526276X, 978-1305279407, 1305279409, 978-1305704930, 1305704932, 978-1305262768

More Books

Students also viewed these Finance questions

Question

How are the limits set?

Answered: 1 week ago