Assume a tax rate of 35% for this assignment. The document should begin with the case name, the group name, and a list of all group members. The recommendation should be written in a professional manner (i.e., do not use non- standard abbreviations, personal anecdotes, or colloquial expressions). The purpose of professional writing is to convey information in a clear and succinct fashion. As such, there is no minimum page requirement and extraneous material should be omitted. The case score will be determined as follows: Executive Summary (10%) - Outline the purpose of the case study Overview of the company relevant to case and motivation for the valuation Discussion (20%) - Outline the steps you will take to value Alliance Discuss the assumptions for the projections you are making - Outline how you will examine the sensitivity of your analysis Which inputs are most important to the valuation? Scenario and sensitivity analysis are highly recommended Recommendation (30%) - What is your estimated value of the firm? Did National overpay? Discuss the sensitivity of your valuation to key economic drivers A graphical approach is recommended - Interpret your results Supporting calculations (Very important!) (40%) Attach any supporting calculations in an Excel document - Format calculations such that each table can be read independently (.e. label all variables with descriptive names) - Your calculations should be easily followed by a third party! Using cell references for key inputs is highly recommended. Assumption: tax rate = 35% Exhibit 3 ALLIANCE CONCRETE: JUST ONE MORE THING Capital Structure Information Market Data Equity Price Balance Sheet Values Equity Shares Debt (in (in thousands) thousands) thousands) (in Debt Yeild to Maturity (per share) Beta National 310,000 12,000 725,000 43.25 1.20 8.75% Comparables Central Concrete Worldwide 150,000 95,000 8,000 4,000 80,549 69,750 24.58 33.79 1.12 1.09 8.46% 8.48% Economist estimate for the future market premium: Current 20-year U.S. Treasury yields: 6.30% 4.38% Levered Beta 1.20 D 725,000 E 519,000 Unlevered Beta 0.629 National Comparables Central Worldwide 1.12 1.09 80,549 69,750 196,640 135,160 Average 0.884 0.816 0.850 (2) Using Estimate of Alliance Capital Structure Purchase 150,000 This is the purchase price Debt 67,000 % Debt 30.88% Debt Yield 8.50% Unlev Beta 0.850 Lev Beta 1.097 Cost Equity 11.29% WACC 9.51% Free cash flow for 2006 Forecast 2006 2002 2003 2004 2005 Revenue Earnings Before Interest and Taxes (EBIT) NOPAT ((1-t)*EBIT) 128,978 15,639 10,165 143,560 18,672 12,137 161,863 17,976 11,684 185,815 23,894 15,531 209,788 23.978 15,586 87,534 10.274 93.569 12,823 PP&E NWC APP&E ANWC 91,392 12,069 3,858 1,795 97,476 15,567 3,907 2.744 105,976 16,441 8,500 874 2,177 754 FCF 6,484 8.753 8,880 6,212 Assumptions for post-2006 cashflows The sales manager recognized a slowdown was quite likely. He expected sales growth of 10% for 2007 and 8% for 2008. After that was pretty much guessing, but when pressed he thought 6% was reasonable. He noted that if sales simply kept pace with long-term economic growth, that would imply about 4% growth per year Despite numerous discussions regarding costs with his staff, it was difficult to arrive at any consensus. Most of the staff believed the last four years had been particularly good ones and realistically expected margins to tighten after 2007. Based on his discussions, Harris believed margins would erode by 0.5% each year starting in 2007. For the long run, he expected margins similar to the industry level, which would be an EBIT-to-Sales ratio of 9% As for investments in plant and equipment, the plant manager continued to argue that plant and equipment were in need of improvement. Just how much was hard to determine. He was quite clear, however, that even with the large capital expenditures approved for 2006, the company had still not invested enough and there could be production problems. Post 2006 Forecast 2009 2002 2013 2004 200S 2006 2007 2008 2010 2011 (Stendy State) Revenue EBIT NOPAT (=(1-1) EBIT) 128,978 15.639 10.165 143.560 18,672 12.137 161,863 17,976 11.684 185,815 23.894 15.531 209,788 23.978 15.586 87.534 10.274 PP&L NWC APP&E ANWC 91,392 12.069 3,858 1.795 93.569 12.823 2.177 754 97,476 15.567 3,907 2,744 105,976 16,441 8.500) 874 TCE 6,484 8,753 8,880 6.212 Ratios NWC/Sales Sales/PP&E Sals Growth ERIT: Sales 7.97% 1.47 8.41% % 1.57 11.31% 7.92% 1.73 12.75% 11.11% 8.38% 1.91 14.80 12.86% 7.84% 1.98 12.90% 11.13% Terminal Valu ICT/(wacc - sales growth) Assume a tax rate of 35% for this assignment. The document should begin with the case name, the group name, and a list of all group members. The recommendation should be written in a professional manner (i.e., do not use non- standard abbreviations, personal anecdotes, or colloquial expressions). The purpose of professional writing is to convey information in a clear and succinct fashion. As such, there is no minimum page requirement and extraneous material should be omitted. The case score will be determined as follows: Executive Summary (10%) - Outline the purpose of the case study Overview of the company relevant to case and motivation for the valuation Discussion (20%) - Outline the steps you will take to value Alliance Discuss the assumptions for the projections you are making - Outline how you will examine the sensitivity of your analysis Which inputs are most important to the valuation? Scenario and sensitivity analysis are highly recommended Recommendation (30%) - What is your estimated value of the firm? Did National overpay? Discuss the sensitivity of your valuation to key economic drivers A graphical approach is recommended - Interpret your results Supporting calculations (Very important!) (40%) Attach any supporting calculations in an Excel document - Format calculations such that each table can be read independently (.e. label all variables with descriptive names) - Your calculations should be easily followed by a third party! Using cell references for key inputs is highly recommended. Assumption: tax rate = 35% Exhibit 3 ALLIANCE CONCRETE: JUST ONE MORE THING Capital Structure Information Market Data Equity Price Balance Sheet Values Equity Shares Debt (in (in thousands) thousands) thousands) (in Debt Yeild to Maturity (per share) Beta National 310,000 12,000 725,000 43.25 1.20 8.75% Comparables Central Concrete Worldwide 150,000 95,000 8,000 4,000 80,549 69,750 24.58 33.79 1.12 1.09 8.46% 8.48% Economist estimate for the future market premium: Current 20-year U.S. Treasury yields: 6.30% 4.38% Levered Beta 1.20 D 725,000 E 519,000 Unlevered Beta 0.629 National Comparables Central Worldwide 1.12 1.09 80,549 69,750 196,640 135,160 Average 0.884 0.816 0.850 (2) Using Estimate of Alliance Capital Structure Purchase 150,000 This is the purchase price Debt 67,000 % Debt 30.88% Debt Yield 8.50% Unlev Beta 0.850 Lev Beta 1.097 Cost Equity 11.29% WACC 9.51% Free cash flow for 2006 Forecast 2006 2002 2003 2004 2005 Revenue Earnings Before Interest and Taxes (EBIT) NOPAT ((1-t)*EBIT) 128,978 15,639 10,165 143,560 18,672 12,137 161,863 17,976 11,684 185,815 23,894 15,531 209,788 23.978 15,586 87,534 10.274 93.569 12,823 PP&E NWC APP&E ANWC 91,392 12,069 3,858 1,795 97,476 15,567 3,907 2.744 105,976 16,441 8,500 874 2,177 754 FCF 6,484 8.753 8,880 6,212 Assumptions for post-2006 cashflows The sales manager recognized a slowdown was quite likely. He expected sales growth of 10% for 2007 and 8% for 2008. After that was pretty much guessing, but when pressed he thought 6% was reasonable. He noted that if sales simply kept pace with long-term economic growth, that would imply about 4% growth per year Despite numerous discussions regarding costs with his staff, it was difficult to arrive at any consensus. Most of the staff believed the last four years had been particularly good ones and realistically expected margins to tighten after 2007. Based on his discussions, Harris believed margins would erode by 0.5% each year starting in 2007. For the long run, he expected margins similar to the industry level, which would be an EBIT-to-Sales ratio of 9% As for investments in plant and equipment, the plant manager continued to argue that plant and equipment were in need of improvement. Just how much was hard to determine. He was quite clear, however, that even with the large capital expenditures approved for 2006, the company had still not invested enough and there could be production problems. Post 2006 Forecast 2009 2002 2013 2004 200S 2006 2007 2008 2010 2011 (Stendy State) Revenue EBIT NOPAT (=(1-1) EBIT) 128,978 15.639 10.165 143.560 18,672 12.137 161,863 17,976 11.684 185,815 23.894 15.531 209,788 23.978 15.586 87.534 10.274 PP&L NWC APP&E ANWC 91,392 12.069 3,858 1.795 93.569 12.823 2.177 754 97,476 15.567 3,907 2,744 105,976 16,441 8.500) 874 TCE 6,484 8,753 8,880 6.212 Ratios NWC/Sales Sales/PP&E Sals Growth ERIT: Sales 7.97% 1.47 8.41% % 1.57 11.31% 7.92% 1.73 12.75% 11.11% 8.38% 1.91 14.80 12.86% 7.84% 1.98 12.90% 11.13% Terminal Valu ICT/(wacc - sales growth)