Dumoulin SA is a privately held company in the neighborhood of Lyon, which produces flour for all types of customers.

Sales in year 2020 amounted to 292,1 million euros, up 33%, and the operational margin reached 2,6%.

The Good-bread SA company is very interested in acquiring Dumoulin SA and would like to make an interesting offer to the shareholders. For the time being, Good-bread SA did not approach Dumoulin SA management, and is trying to assess its target.

M. Bloch, Good-bread's CFO, obtained a confidential documentusing a contact working at Dumoulin SA: The business plan for an investment in a new mill.

Among other things, the business plan provided some useful information :

A projected Income Statement for the coming 5 years

An evaluation of Dumoulin SA current Net Debt (15,6 millions )

The Weighted Average Cost of Capital for Dumoulin SA (12,5%)

Various assumptions related to the "mill project" (rate of growth to infinity = 1,5%) Additional details were available to compute a first assessment of Dumoulin SA.

Business Plan (m)

2020

2021e

2022e

2023e

2024e

2025e

Sales (growth rate)

292,1

(32,7%)

359,2

(23,0%)

320,8

(-10,7%)

323,5

(0,8%)

326,5

(0,9%)

329,5

(0,9%)

Gross Margin

(% of sales)

30,3

(10,4%)

35,6

(9,9%)

31,8

(9,9%)

33,1

(10,2%)

34,7

(10,6%)

35,1

(10,6%)

EBIT

(% of sales)

7,6

(2,6%)

11,4

(3,2%)

7,6

(2,4%)

8,6

(2,6%)

9,6

(3,0%)

9,9

(3,0%)

Corporate Taxe (34,4%)

-2,6

-3,9

-2,6

-2,9

-3,3

-3,4

EBIT after tax

5,0

7,5

5,0

5,6

6,3

6,5

Depreciation Charge Investments

0,2

-0,2

0,2

-0,2

0,2

-0,2

0,2

-0,2

0,2

-0,2

0,2

-0,2

Working Capital

(% of sales)

38,0

46,7

(13,0%)

41,7

(13,0%)

42,1

(13,0%)

42,4

(13,0%)

42,8

(13,0%)

1- how do i Compute the expected Free Cash-Flow in the Income Statement document.

2-Assess the Terminal Value of Dumoulin SA (end date of the business plan + 1 year).

Gordon Shapiro formula allows to calculate the Terminal Value (TV) based on an estimated growth rate to infinity, the Wacc and a standardised flow (F).

M. Bloch has decided to calculate F based on the projected EBIT after tax for 2025 + a growth rate of 1,5%.

3-Using the discounted cash-flow (DCF) method to estimate the value of Dumoulin SA. (4pts) 4- What do you consider as the main benefit of the DCF method ?