"Ben Walter" Valuation Case

Draft (worth 45 points) - Due Week 6

Final Case (worth 30 points) - Due Week 8

Step #1: Prepare pro-forma financial statements (income statement and balance sheet) for (30 pts) 4 years (2022-2026) for BOTHscenarios. Include base assumptions for each scenario. Statements should be in Excel with appropriate formulas and formatting.

Scenario 1: Maintain low margins and high-volume sales growth (base case).

Scenario 2: Increased margins and reduced future growth rate and debt load.

Hints: #1: See chapter 12 for assistance in preparing pro-forma financials.

#2:2022 pro-forma is provided for you.

#3: Be sure to include base assumptions and justifications for altering base case.

Step #2: Determine Free Cash Flow for the forecasted periodfor each scenario.

(15 pts) If FCF is negative at the end of the forecast period, you can do one or more of the following:

#1: Extend the forecast until FCF turns positive (no more than 3 years of additional forecasting)

#2: Alter assumptions to make FCF positive by the end of forecast period (i.e. lower growth rate, reduce operating expense etc.).

#3: Use a market multiple in place of the constant growth model for Horizon Value calculation

Step #3: Use Corporate Valuation Model from chapter 12.

(15 pts.) (i.e. Discounted cash flow) to value both scenarios.

See chapter 9 for a review of WACC calculation. Use 8% for an estimate of cost of debt.

You may stop your valuation at Total Corporate Value (Value of Operating Assets + Value of Non-Operating Assets) OR subtract debt to find Total Equity Value i.e. the price Ben would pay).

Step #4: Discuss pros/cons of business points related to each scenario.

(10 pts)

Step #5: Which strategy creates the most value and has the best likelihood for success? (5 pts) Please cite both quantitative and non-quantitative reasons for your choice.

Format Requirements:

* Cash flow forecasts should be in an excel spreadsheet with appropriate formulas and formatting.

* Written analysis can be in bullet form in Word.

* Points will be deducted for distracting spelling and grammatical errors.

Other Tips/Reminders:

* This assignment is not a group project and should be completed individually.

* Information provided in the case is limited. As such, it is acceptable to make assumptions regarding future economic conditions. Please explain the assumptions and make sure the forecast and analysis are consistent with the scenario presented. Cite sources used.