Discuss the key variables you would use to test the sensitivity of the DCF analysis in Exhibit
Fantastic news! We've Found the answer you've been seeking!
Question:
Discuss the key variables you would use to test the sensitivity of the DCF analysis in Exhibit 11. You can use high to low range within +10% to -10% of any variable's value. Pick two variables from the sensitivity analysis and perform a scenario analysis on them (I.e., vary them simultaneously and see the impact on value).
For the base year, use Excess Cash = $1,512mn, Debt = $1,432mn, EBIT =$1,756mn. Use the Post-IPO number of shares for valuing the stock =2,138,085,037.
Transcribed Image Text:
DCF Assumptions: Revenue growth rate EBIT (Operating) margin Tax rate Increase in CAPEX + WC as % of sales Cost of capital Free cash flow to firm ($ millions): Revenues EBIT EBIT (1-tax) Increase in CAPEX + WC FCFF Terminal value Present value: Cumulative discount factor PV of FCFF and TV Value of firm - Debt + Excess Cash Value of equity - Cost of equity options (after tax) Value of common equity Number of shares (millions) Estimated value /share 2011 Base year Price talk Price as % of value 45.7% 40.0% 3,711 1,695 1,017 72,026.7 1,088.9 1,512.0 72,449.8 3,088.5 69,361.3 2,138.1 $ 32.44 $ 38.00 117% 2012E 1 2013E 2 40.0% 40.0% 44.6% 43.5% 40.0% 67% 40.0% 67% 11.1% 11.1% 5,195 7,274 2,318 3,167 1,391 1,900 995 1,392 396 508 0.9002 0.8104 356 412 2014E 3 40.0% 42.5% 40.0% 67% 11.1% 10, 183 4,325 2,595 1,949 646 0.7296 471 WACC Market values Weights in WACC Cost of Component 2015E 4 40.0% 41.4% 40.0% 67% 11.1% 2016E 5 0.6568 534 2017E 6 40.0% 32.4% 40.3% 39.3% 40.0% 39.0% 67% 67% 11.1% 10.5% 14,256 19,959 26,425 8,051 10,377 4,830 6,330 5,903 3,542 2,729 813 3,821 4,333 1,010 1,997 0.5912 0.5352 597 1,069 2018E 7 24.8% 17.2% 9.6% 38.2% 37.1% 36.1% 38.0% 37.0% 36.0% 67% 67% 67% 9.8% 9.2% 8.6% 32,979 38,651 12,599 14,353 15,279 7,811 9,042 9,778 2,486 4,391 3,800 3,420 5,242 7,292 0.4872 1,667 2019E 2020E 8 9 Equity Debt Preferred Capital $81,247.2 $1,088.9 $1,088.9 $ - 98.7% 1.3% $82,336.1 0.0% 11.2% 2.4% 7.1% 100.0% 11.1% 2021E 10 2.0% 35.0% 35.0% 67% 8.0% 42,362 43,209 15,123 9,830 568 9,262 0.4461 0.4107 0.3802 2,338 2,995 3,522 Terminal year 2.0% 35.0% 35.0% 100% 8.0% 44,073 15,426 10,027 864 9,162 152,707 0.3802 58,066 DCF Assumptions: Revenue growth rate EBIT (Operating) margin Tax rate Increase in CAPEX + WC as % of sales Cost of capital Free cash flow to firm ($ millions): Revenues EBIT EBIT (1-tax) Increase in CAPEX + WC FCFF Terminal value Present value: Cumulative discount factor PV of FCFF and TV Value of firm - Debt + Excess Cash Value of equity - Cost of equity options (after tax) Value of common equity Number of shares (millions) Estimated value /share 2011 Base year Price talk Price as % of value 45.7% 40.0% 3,711 1,695 1,017 72,026.7 1,088.9 1,512.0 72,449.8 3,088.5 69,361.3 2,138.1 $ 32.44 $ 38.00 117% 2012E 1 2013E 2 40.0% 40.0% 44.6% 43.5% 40.0% 67% 40.0% 67% 11.1% 11.1% 5,195 7,274 2,318 3,167 1,391 1,900 995 1,392 396 508 0.9002 0.8104 356 412 2014E 3 40.0% 42.5% 40.0% 67% 11.1% 10, 183 4,325 2,595 1,949 646 0.7296 471 WACC Market values Weights in WACC Cost of Component 2015E 4 40.0% 41.4% 40.0% 67% 11.1% 2016E 5 0.6568 534 2017E 6 40.0% 32.4% 40.3% 39.3% 40.0% 39.0% 67% 67% 11.1% 10.5% 14,256 19,959 26,425 8,051 10,377 4,830 6,330 5,903 3,542 2,729 813 3,821 4,333 1,010 1,997 0.5912 0.5352 597 1,069 2018E 7 24.8% 17.2% 9.6% 38.2% 37.1% 36.1% 38.0% 37.0% 36.0% 67% 67% 67% 9.8% 9.2% 8.6% 32,979 38,651 12,599 14,353 15,279 7,811 9,042 9,778 2,486 4,391 3,800 3,420 5,242 7,292 0.4872 1,667 2019E 2020E 8 9 Equity Debt Preferred Capital $81,247.2 $1,088.9 $1,088.9 $ - 98.7% 1.3% $82,336.1 0.0% 11.2% 2.4% 7.1% 100.0% 11.1% 2021E 10 2.0% 35.0% 35.0% 67% 8.0% 42,362 43,209 15,123 9,830 568 9,262 0.4461 0.4107 0.3802 2,338 2,995 3,522 Terminal year 2.0% 35.0% 35.0% 100% 8.0% 44,073 15,426 10,027 864 9,162 152,707 0.3802 58,066
Expert Answer:
Answer rating: 100% (QA)
To perform a sensitivity analysis on the DCF analysis in Exhibit 11 we need to identify key variable... View the full answer
Related Book For
Cost Accounting Foundations and Evolutions
ISBN: 978-1111626822
8th Edition
Authors: Michael R. Kinney, Cecily A. Raiborn
Posted Date:
Students also viewed these finance questions
-
Read the case study "Southwest Airlines," found in Part 2 of your textbook. Review the "Guide to Case Analysis" found on pp. CA1 - CA11 of your textbook. (This guide follows the last case in the...
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
The Crazy Eddie fraud may appear smaller and gentler than the massive billion-dollar frauds exposed in recent times, such as Bernie Madoffs Ponzi scheme, frauds in the subprime mortgage market, the...
-
Air pollution officials in Californias Central Valley have opened a new front in the war against urban sprawl, and regulators and environmental advocates throughout the state are watching closely....
-
Consider a refrigerator that consumes 320 W of electric power when it is running. If the refrigerator runs only one quarter of the time and the unit cost of electricity is $0.09/kWh, the electricity...
-
Medrano Ltd is a furniture manufacturer. The company is looking at three alternative specialised machines to replace its existing production line. Data for each of the machines are as follows:...
-
Does the pecking order theory imply that the company has an optimal capital structure? What are the criteria for determining capital structure according to this approach?
-
1. As DIY Stores built its online presence, how well did it organize around its core capabilities? 2. DIY Stores is a large national chain. What impact did its size have on its agility? 3. How could...
-
D Name two pairs of congruent angles in the figure. Justify
-
When Pablo Gonzalez died unmarried in 2018, he left an estate valued at $7,850,000. His trust directed distribution as follows: $20,000 to local hospital, $160,000 to his alma mater, and the...
-
Six randomly chosen students report the following daily hours of study: S = {3,2,1,4,3,5} 1. Use this sample data above to compute the following sums, products, and ratios: . B. 297 (S) 2. C. (S-5)...
-
Write a multithreaded program to estimate the PI value using the Leibniz Series shown below. (1) (2) 74 [[ = 1 || 8WI 1 3 + 1 (-1)* 2k + 1 - 1 1 + 7 9 0-78539 81633 9744... You are asked to compute...
-
Morgan Company's budgeted income statement reflects the following amounts: Sales Purchases Expenses January $119,000 $77,000 $23,900 February 109,000 65,000 24,100 March 124,000 80,250 26,900 April...
-
Minor, Incorporated, had revenue of $625,000 and expenses (other than income taxes) of $286,000 for the current year. The company is subject to a 35 percent income tax rate. In addition, Minor had a...
-
Reviewing your team project and policy paper, I would like for you to express and outline. Think about these questions in responding: - What factors influence how need is determined? - How are...
-
Amy runs a wholesale grocery business aiming to provide ingredients to local restaurants and hotels in Hunter Region area, and she hires an accountant to record the transactions for her business....
-
AIU Industries has 3 potential projects to consider, all with an initial cost of $1,250,000. The company prefers to reject any project with a 4-year cut-off period for recapturing initial cash...
-
What impact has the Internet had on the globalization of small firms? How do you think small companies will use the Internet for business in the future?
-
San Francisco Sea Salt's controller prepared the following cash flow statements (in thousands of dollars) for the past two years, the current year (2010), and the upcoming year (2011): After...
-
Why does variable costing provide more useful information than absorption costing for making internal decisions?
-
You are the chief financial officer for a small manufacturing company that has applied for a bank loan. In speaking with the bank loan officer, you are told that two minimum criteria for granting...
-
Three years ago the TCBY at the local mall bought a frozenyogurt machine for $8,000. A salesperson has just suggested to the manager that she replace the machine with a new $12,500 machine. The...
-
English Bay Beach Company manufactures suntan lotion, called Surtan, in 11 -ounce plastic bottles. Surtan is sold in a competitive market. As a result, management is very cost-conscious. Surtan is...
-
Jessica Company manufactures bicycles and tricycles. For both products, mate- rials are added at the beginning of the production process, and conversion costs are in- curred uniformly. Jessica...
Study smarter with the SolutionInn App