Exercise: Consider the following company with a key investment

decision

Exercise: Consider the following company with a key investment decision Euro millions Revenues Costs of Goods Sold Gross Profit Personnel Expenses Other Operating costs EBITDA Depreciation EBIT Net financing costs Pre-tax profit Taxes Net Income Net Debt Number of employees 2015 100.0 60.0 40.0 15.0 5.0 20.0 8.0 12.0 1.5 10.5 3.2 7.4 30 375 2016 105.0 63.0 42.0 16.0 5.0 21.0 8.0 13.0 1.5 11.5 3.5 8.1 30 380 2017 110.3 66.2 44.1 17.0 5.0 22.1 8.0 14.1 1.5 12.6 3.8 8.8 30 385 2018 115.8 69.5 46.3 18.0 5.0 23.3 8.0 15.3 1.5 13.8 4.1 9.7 30 390 2019 121.6 72.9 48.6 19.0 5.0 24.6 8.0 16.6 1.5 15.1 4.5 10.6 30 395 2020 127.6 76.6 51.1 20.0 5.0 26.1 8.0 18.1 1.5 16.6 5.0 11.6 30 400 A new IT system is offered to the company, which is implementable within 2 years and which boosts productivity as of year 3. As a result, the company can cut 30% of its workforce. The IT System costs 6m and implementation costs are 12m. Redundancy costs per employee are 20k. If the company is fairly valued at EV/EBITDA, how much equity value does the implementation of the IT system add or destroy? Exercise: Consider the following company with a key investment decision Euro millions Revenues Costs of Goods Sold Gross Profit Personnel Expenses Other Operating costs EBITDA Depreciation EBIT Net financing costs Pre-tax profit Taxes Net Income Net Debt Number of employees 2015 100.0 60.0 40.0 15.0 5.0 20.0 8.0 12.0 1.5 10.5 3.2 7.4 30 375 2016 105.0 63.0 42.0 16.0 5.0 21.0 8.0 13.0 1.5 11.5 3.5 8.1 30 380 2017 110.3 66.2 44.1 17.0 5.0 22.1 8.0 14.1 1.5 12.6 3.8 8.8 30 385 2018 115.8 69.5 46.3 18.0 5.0 23.3 8.0 15.3 1.5 13.8 4.1 9.7 30 390 2019 121.6 72.9 48.6 19.0 5.0 24.6 8.0 16.6 1.5 15.1 4.5 10.6 30 395 2020 127.6 76.6 51.1 20.0 5.0 26.1 8.0 18.1 1.5 16.6 5.0 11.6 30 400 A new IT system is offered to the company, which is implementable within 2 years and which boosts productivity as of year 3. As a result, the company can cut 30% of its workforce. The IT System costs 6m and implementation costs are 12m. Redundancy costs per employee are 20k. If the company is fairly valued at EV/EBITDA, how much equity value does the implementation of the IT system add or destroy?