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Conduct a Sensitivity Analysis for Google Vary the following inputs to the two-tier valuation model and indicate the new valuation amount and the percentage change
- Conduct a Sensitivity Analysis for Google
- Vary the following inputs to the two-tier valuation model and indicate the new valuation amount and the percentage change from the above "base" case.
- Free Cash Flows
- Increase the FCF by 10%
- Decrease the FCF by 10%
- Terminal Growth Rate
- Increase the Terminal Growth Rate from 2.5% to 3.5%
- Decrease the Terminal Growth Rate from 2.5% to 1.5%
- WACC
- Add 2% to the WACC (that is if the WACC is 7.5% make it 9.5%)
- Subtract 2% from the WACC (that is if the WACC is 7.5% make it 5.5%)
- Observations
- State your observations from the sensitivity analysis. How important (conceptually) is the terminal growth rate to overall value? How important is the WACC to overall value?
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FCF $29,129,252 WACC 12.00% Year FCF PV @12% Present Value Growth rate = 8% 1 $31,380,480 0.8929 $28,018,286.00 Growth rate = 8% 2 $33,890,918 0.7972 $27,017,633.00 Growth rate = 8% 3 $36,602,192 0.7118 $26,052,717.00 Terminal Value 4 $394,918,387.00 0.7118 $281,095,108.00 Total firm Value $362,183,744.00 Market cap $958,950,000,000 Firm Value $362,183,744.00 Total debt (mrq) $16,800,000,000 Intrinsic value = Firm Value - debt ($16,437,816,256.00)
- Vary the following inputs to the two-tier valuation model and indicate the new valuation amount and the percentage change from the above "base" case.
- Free Cash Flows
- Increase the FCF by 10%
- Decrease the FCF by 10%
- Terminal Growth Rate
- Increase the Terminal Growth Rate from 2.5% to 3.5%
- Decrease the Terminal Growth Rate from 2.5% to 1.5%
- WACC
- Add 2% to the WACC (that is if the WACC is 7.5% make it 9.5%)
- Subtract 2% from the WACC (that is if the WACC is 7.5% make it 5.5%)
- Free Cash Flows
- Observations
- State your observations from the sensitivity analysis. How important (conceptually) is the terminal growth rate to overall value? How important is the WACC to overall value?
-
FCF $29,129,252 WACC 12.00% Year FCF PV @12% Present Value Growth rate = 8% 1 $31,380,480 0.8929 $28,018,286.00 Growth rate = 8% 2 $33,890,918 0.7972 $27,017,633.00 Growth rate = 8% 3 $36,602,192 0.7118 $26,052,717.00 Terminal Value 4 $394,918,387.00 0.7118 $281,095,108.00 Total firm Value $362,183,744.00 Market cap $958,950,000,000 Firm Value $362,183,744.00 Total debt (mrq) $16,800,000,000 Intrinsic value = Firm Value - debt ($16,437,816,256.00)
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Financial Accounting
Authors: Jan R. Williams, Susan F. Haka, Mark S. Bettner, Joseph V. Carcello
12th Edition
0071116796, 978-0071116794
