Exercise 4 (Exam spring 2015) An analyst has estimated the following pro-forma income statements and balance sheets for the years 2015-2019 for the company SILIPHONE Inc.: 2014 (actual) 2015 2016 2017 2018 2019 INCOME STATEMENT Revenues Cost of goods sold Gross profit 19 726 203 12 789 155 6937 048 20 909 775 13 556 504 7353 271 22 164 361 14 369 894 7 794 467 23 494 223 15 232 088 8 262 135 24 903 876 16 146 013 8 757 863 Operating expenses: Fixed operating expenses Variable operating expenses Depreciation expense Net operating income 1 000 000 3 169 343 800 214 1 967 491 1 000 000 3 359 504 848 227 2 145 541 1 000 000 3 561 074 899 121 2 334 273 1 000 000 3774 738 953 068 2 534 329 1 000 000 4001 223 1010 252 2 746 389 Interest expense 442 862 438 721 429 826 416 309 397 717 Earnings before taxes 1524 629 1 706 820 1904 447 2 118 021 2 348 673 Taxes (40%) 609 852 682 728 761 779 847 208 939 469 Net income 914 777 1024 092 1 142 668 1 270 813 1 409 204 Dividends paid 100 000 100 000 100 000 100 000 100 000 Dividends paid 100 000 100 000 100 000 100 000 100 000 BALANCE SHEET Cash Accounts receivable Inventory Current assets Net property, plant and equipment Total assets 372 193 4056 899 6 141 177 10 570 268 8 002 139 18 572 407 374 798 4 221 407 6 450 468 11 046 674 8 482 267 19 528 941 397 286 4 474 692 6 837 496 11 709 474 8 991 203 20 700 677 421 123 4 743 173 7247 746 12 412 042 9 530 675 21 942 718 446 390 5 027 764 7 682 611 13 156 765 10 102 516 23 259 280 473 174 5 329 429 8 143 568 13 946 171 10 708 667 24 654 837 Accounts payable Short-term debt Current liabilities Long-term debt Total liabilities Deferred income taxes Owners' equity Total liabilities and owners' equity 4400050 4094 118 8 494 168 2 232 483 10 726 651 185 186 7 660 570 18 572 407 4 497 574 4004 419 8 501 993 2 263 018 10 765 011 198 583 8 565 347 19 528 941 4 767 429 4244 684 9012 113 1985 688 10 997 801 213 438 9 489 439 20 700 677 5053 474 4499 365 9552 840 1 627 898 11 180 738 229 873 10 532 107 21 942 718 5 356 683 4 769 327 10 126 010 1 182 333 11 308 343 248 018 11 702 919 23 259 280 5678 084 5055 487 10 733 571 641 137 11 374 708 268 007 13 012 123 24 654 837 The analyst tells you that Cash is part of the firm's operating current assets. The firm's interest bearing debt consists of short-term debt and Long-term debt. The analyst is using a weighted average cost of capital (WACC) of 10% and he believes the long-term growth rate in free cash flows will equal 5%. a) Estimate firm free cash flows for the years 2015-2019. b) Compute both the enterprise value and the equity value of SILIPHONE. Exercise 4 (Exam spring 2015) An analyst has estimated the following pro-forma income statements and balance sheets for the years 2015-2019 for the company SILIPHONE Inc.: 2014 (actual) 2015 2016 2017 2018 2019 INCOME STATEMENT Revenues Cost of goods sold Gross profit 19 726 203 12 789 155 6937 048 20 909 775 13 556 504 7353 271 22 164 361 14 369 894 7 794 467 23 494 223 15 232 088 8 262 135 24 903 876 16 146 013 8 757 863 Operating expenses: Fixed operating expenses Variable operating expenses Depreciation expense Net operating income 1 000 000 3 169 343 800 214 1 967 491 1 000 000 3 359 504 848 227 2 145 541 1 000 000 3 561 074 899 121 2 334 273 1 000 000 3774 738 953 068 2 534 329 1 000 000 4001 223 1010 252 2 746 389 Interest expense 442 862 438 721 429 826 416 309 397 717 Earnings before taxes 1524 629 1 706 820 1904 447 2 118 021 2 348 673 Taxes (40%) 609 852 682 728 761 779 847 208 939 469 Net income 914 777 1024 092 1 142 668 1 270 813 1 409 204 Dividends paid 100 000 100 000 100 000 100 000 100 000 Dividends paid 100 000 100 000 100 000 100 000 100 000 BALANCE SHEET Cash Accounts receivable Inventory Current assets Net property, plant and equipment Total assets 372 193 4056 899 6 141 177 10 570 268 8 002 139 18 572 407 374 798 4 221 407 6 450 468 11 046 674 8 482 267 19 528 941 397 286 4 474 692 6 837 496 11 709 474 8 991 203 20 700 677 421 123 4 743 173 7247 746 12 412 042 9 530 675 21 942 718 446 390 5 027 764 7 682 611 13 156 765 10 102 516 23 259 280 473 174 5 329 429 8 143 568 13 946 171 10 708 667 24 654 837 Accounts payable Short-term debt Current liabilities Long-term debt Total liabilities Deferred income taxes Owners' equity Total liabilities and owners' equity 4400050 4094 118 8 494 168 2 232 483 10 726 651 185 186 7 660 570 18 572 407 4 497 574 4004 419 8 501 993 2 263 018 10 765 011 198 583 8 565 347 19 528 941 4 767 429 4244 684 9012 113 1985 688 10 997 801 213 438 9 489 439 20 700 677 5053 474 4499 365 9552 840 1 627 898 11 180 738 229 873 10 532 107 21 942 718 5 356 683 4 769 327 10 126 010 1 182 333 11 308 343 248 018 11 702 919 23 259 280 5678 084 5055 487 10 733 571 641 137 11 374 708 268 007 13 012 123 24 654 837 The analyst tells you that Cash is part of the firm's operating current assets. The firm's interest bearing debt consists of short-term debt and Long-term debt. The analyst is using a weighted average cost of capital (WACC) of 10% and he believes the long-term growth rate in free cash flows will equal 5%. a) Estimate firm free cash flows for the years 2015-2019. b) Compute both the enterprise value and the equity value of SILIPHONE
