forget the unrelate one

Question 3 You work as a financial analyst in a private equity firm. Your boss asked you to value LinQlec, a start-up specializes in non-vitamin additives used in animal feed, for a potential takeover target. You proposed to value the company by the discounted free cash flows (FCFS) method. To ease the valuation of the company, you plan to build a financial statement model to forecast the FCFS based on the following information $1,200 10% per year 60% of sales Sales last year (Year 2018) Sales growth rate Cost of goods sold (COGS) Selling, general and administrative expenses 20% of sales Depreciation rate Interest rate on debt Interest paid on cash & marketable securities Current assets excluding cash & mkt sec. Current liabilities 10% of the average fixed assets at cost 8% of the average debt 3% of the average cash & mkt. sec 10% of sales 20% of sales 90% of sales 25% of before-tax profit 60% of after-tax profit Fixed assets at cost Corporate income tax rate Dividend payout ratio In addition, you assume the financial policies below: Because of the nature of the business, cash and marketable securities must be kept at least $250 on the balance sheets of the projected years. Over the projected years, the amount of debt is expected to drop by $25 per year. When the Company needs additional financing, it will issue more shares of the common stock. And when the capital is surplus, the company will park the fund in Cash& Marketable Securities Assume today is at the end of 2018 and the information on the balance sheet of 2018 is shown below Liabilities and Equity Current Liabilities Assets 2018 2018 Cash&Marketable Securities Current Assets Fixed Assets at Cost Accumulated Depreciation 100 100 150 1,000 Debt 500 -50 Stock 500 Net Fixed Assets 950 Accumulated Retained Earnings Total Liabilities and Equity 100 Total Assets 1,200 1,200 Note: Question No. 3 continues on page 4 en Question 2 (continued) (b) Find all the possible internal rates of return for Project C. What is (are) the value(s) of the hurdle rate that would make you invest in Project C (10 marks) (TOTAL: 20 marks) Quession 3 (contined a) Forccast the income statement, halance sheet statements, and the free cash flows for the next 5 years. Report all accounting items (20 marks) b) Suppose the appropriate rate to discount the free cash flow is equal to 20% per year and assume that the long-term growth rate of the FCFS after Year 5 is equal to 5 % What is the terminal value at Year 5 (6.., the value at Year 5 of all FCFS in Year 6 and latery? Under the mid-year discounting assumption, what would be the estimated value of the whole company, the estimated value of the equity? (10 marks) (TOTAL: 30 marks) Question 3 You work as a financial analyst in a private equity firm. Your boss asked you to value LinQlec, a start-up specializes in non-vitamin additives used in animal feed, for a potential takeover target. You proposed to value the company by the discounted free cash flows (FCFS) method. To ease the valuation of the company, you plan to build a financial statement model to forecast the FCFS based on the following information $1,200 10% per year 60% of sales Sales last year (Year 2018) Sales growth rate Cost of goods sold (COGS) Selling, general and administrative expenses 20% of sales Depreciation rate Interest rate on debt Interest paid on cash & marketable securities Current assets excluding cash & mkt sec. Current liabilities 10% of the average fixed assets at cost 8% of the average debt 3% of the average cash & mkt. sec 10% of sales 20% of sales 90% of sales 25% of before-tax profit 60% of after-tax profit Fixed assets at cost Corporate income tax rate Dividend payout ratio In addition, you assume the financial policies below: Because of the nature of the business, cash and marketable securities must be kept at least $250 on the balance sheets of the projected years. Over the projected years, the amount of debt is expected to drop by $25 per year. When the Company needs additional financing, it will issue more shares of the common stock. And when the capital is surplus, the company will park the fund in Cash& Marketable Securities Assume today is at the end of 2018 and the information on the balance sheet of 2018 is shown below Liabilities and Equity Current Liabilities Assets 2018 2018 Cash&Marketable Securities Current Assets Fixed Assets at Cost Accumulated Depreciation 100 100 150 1,000 Debt 500 -50 Stock 500 Net Fixed Assets 950 Accumulated Retained Earnings Total Liabilities and Equity 100 Total Assets 1,200 1,200 Note: Question No. 3 continues on page 4 en Question 2 (continued) (b) Find all the possible internal rates of return for Project C. What is (are) the value(s) of the hurdle rate that would make you invest in Project C (10 marks) (TOTAL: 20 marks) Quession 3 (contined a) Forccast the income statement, halance sheet statements, and the free cash flows for the next 5 years. Report all accounting items (20 marks) b) Suppose the appropriate rate to discount the free cash flow is equal to 20% per year and assume that the long-term growth rate of the FCFS after Year 5 is equal to 5 % What is the terminal value at Year 5 (6.., the value at Year 5 of all FCFS in Year 6 and latery? Under the mid-year discounting assumption, what would be the estimated value of the whole company, the estimated value of the equity? (10 marks) (TOTAL: 30 marks)