FIN454 Fall21 - Assignment2.pdf 3/7 Question 2 (40 points) Chobani Inc. just filed the necessary documentation with the SEC to go public in the very near future. You would like to do a first pass valuation of Chobani, Based on your analysis of the competitive environment, you decide to assume a five year "high- growth phase during which you will estimate the FCFF. You will then stop forecasting cash flows and compute the terminal value. You decide to base your analysis on a top-down growth approach, in part because you expect operating margins to change. Chobani Inc. posted an operating income of $42 million for its last full fiscal year ended December 2020. Chobani's revenues were $1,401 million for 2020. The yogurt industry is $7 billion, and you expect it to grow at a rate of 6% per year over the next 5 years, at which point you anticipate Chobani's market share will reach 25%. You set the pretax target operating margin at 13%, which is typical of food processing firms. Use a tax rate of 21% whenever you need a tax rate. Use the table below to summarize your answers, but show your work for each question for partial credit. 1. Compute your projected revenue at year 5 and fill in intermediate revenue projections for year 1 through 4 by using the midpoint formula: revenueyear it1 = (revenue,var i + revenueycars) /2. 2. Fill in intermediate pretax operating margin projections also by using the midpoint formula. 3. Compute the EBIT and after-tax EBIT for each of the next five years. 4. After some research, you decide to use a Sales/Capital ratio of 1.5, which is the average sales/capital ratio for food processing companies. Compute the reinvestment needs for Chobani Inc. for each of the next five years. 5. Compute the FCFF for the next five years. 6. Compute the terminal value as of year 5 assuming a constant growth rate in perpetuity of 1.6%, a return on capital of 10% and a cost of capital of 6% in perpetuity. 7. Discuss how you would justify the decision to set the return on capital above the cost of capital in perpetuity for Chobani. IN FIN454 Fall21 - Assignment 2.pdf 4/7 Que revenues i thousands) preras operating margin Kerr KRIT(1-1) saleveapital reinvestment FCFF current 1.401.371.0 41,350.0 1 2 3 4 S Terminal Value at year FIN454 Fall21 - Assignment2.pdf 3/7 Question 2 (40 points) Chobani Inc. just filed the necessary documentation with the SEC to go public in the very near future. You would like to do a first pass valuation of Chobani, Based on your analysis of the competitive environment, you decide to assume a five year "high- growth phase during which you will estimate the FCFF. You will then stop forecasting cash flows and compute the terminal value. You decide to base your analysis on a top-down growth approach, in part because you expect operating margins to change. Chobani Inc. posted an operating income of $42 million for its last full fiscal year ended December 2020. Chobani's revenues were $1,401 million for 2020. The yogurt industry is $7 billion, and you expect it to grow at a rate of 6% per year over the next 5 years, at which point you anticipate Chobani's market share will reach 25%. You set the pretax target operating margin at 13%, which is typical of food processing firms. Use a tax rate of 21% whenever you need a tax rate. Use the table below to summarize your answers, but show your work for each question for partial credit. 1. Compute your projected revenue at year 5 and fill in intermediate revenue projections for year 1 through 4 by using the midpoint formula: revenueyear it1 = (revenue,var i + revenueycars) /2. 2. Fill in intermediate pretax operating margin projections also by using the midpoint formula. 3. Compute the EBIT and after-tax EBIT for each of the next five years. 4. After some research, you decide to use a Sales/Capital ratio of 1.5, which is the average sales/capital ratio for food processing companies. Compute the reinvestment needs for Chobani Inc. for each of the next five years. 5. Compute the FCFF for the next five years. 6. Compute the terminal value as of year 5 assuming a constant growth rate in perpetuity of 1.6%, a return on capital of 10% and a cost of capital of 6% in perpetuity. 7. Discuss how you would justify the decision to set the return on capital above the cost of capital in perpetuity for Chobani. IN FIN454 Fall21 - Assignment 2.pdf 4/7 Que revenues i thousands) preras operating margin Kerr KRIT(1-1) saleveapital reinvestment FCFF current 1.401.371.0 41,350.0 1 2 3 4 S Terminal Value at year
