FIN 3110 Spring 2020 Project 7 Background: Discounting cash flows can be used to make capital budgeting decisions and can also be used to value a firm For this project, we will implement a simplified free cash flow model (Discounted Cash Flows or DCF) to value a company, Betzy Incorporated. Valuation models, however, can be very sensitive to the inputs and assumptions used. In order to easily see how our valuation changes when our inputs change, we utilize Excel's data tables. What to do: Part A Betzy Inc. is a relatively new company. The company's prior year's (starting) free cash flow was found to be $185,000. The company currently has $35,000 in debt and 250,000 shares outstanding. Given that it is a relatively new company, you believe that Betzy Inc, will have strong growth over the next 5 years. After 5 years, you assume that the company's growth will stabilize to a normal rate and continue that rate of growth forever. For now, assume a growth rate of 12% for the first 5 years FCF and a terminal growth rate of 3% (rate after year 5). Note: assume annual end-of-year data You also need to find the company's WACC. You gathered the following data to solve for Betzy Inc.'s WACC. The firm has debt with a market value of S4m, $3m in preferred stock, and equity with a market value of $5m and faces a corporate tax rate of 40%. The expected market return is 13%, the risk free rate is 4% and the firm's Beta is 1.2. The preferred stock has a current price of $22 and pays a $1.5 dividend. The firm's debt consists of bonds with a coupon rate of 11% that makes payments semi-annually and matures in 12 years. The current price of the bond is $960. Use the above information to create a model to find the intrinsic value of Betzy Inc. Be sure that if the user changes any inputs, the model appropriately updates. FIN 3110 Spring 2020 Project 7 Background: Discounting cash flows can be used to make capital budgeting decisions and can also be used to value a firm For this project, we will implement a simplified free cash flow model (Discounted Cash Flows or DCF) to value a company, Betzy Incorporated. Valuation models, however, can be very sensitive to the inputs and assumptions used. In order to easily see how our valuation changes when our inputs change, we utilize Excel's data tables. What to do: Part A Betzy Inc. is a relatively new company. The company's prior year's (starting) free cash flow was found to be $185,000. The company currently has $35,000 in debt and 250,000 shares outstanding. Given that it is a relatively new company, you believe that Betzy Inc, will have strong growth over the next 5 years. After 5 years, you assume that the company's growth will stabilize to a normal rate and continue that rate of growth forever. For now, assume a growth rate of 12% for the first 5 years FCF and a terminal growth rate of 3% (rate after year 5). Note: assume annual end-of-year data You also need to find the company's WACC. You gathered the following data to solve for Betzy Inc.'s WACC. The firm has debt with a market value of S4m, $3m in preferred stock, and equity with a market value of $5m and faces a corporate tax rate of 40%. The expected market return is 13%, the risk free rate is 4% and the firm's Beta is 1.2. The preferred stock has a current price of $22 and pays a $1.5 dividend. The firm's debt consists of bonds with a coupon rate of 11% that makes payments semi-annually and matures in 12 years. The current price of the bond is $960. Use the above information to create a model to find the intrinsic value of Betzy Inc. Be sure that if the user changes any inputs, the model appropriately updates
