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I need the solutions to the four questions on a finance case. See attached excel and the PDF of the case.

Week 11 Equity Valuation SEE THE IS/BS MODEL & FLOW DIAGRAM TABS -YOU ARE NOW READ: VIDEOS: CASE CFW on Valuation, Chapter 6 The "Big Daddy" Valuation Formula links to videos on Week 11 Bb page A Swinging Attitude for Equity Valuation Success Monmouth, Inc. do not confuse Monmouth and Robertson Tool; examine titles of case exhib Learning Objectives - Apply financial analysis techniques learned so far to size-up a business - Learn how to use and not abuse the Free Cash Flow Equity Valuation Model - Learn how to use and not abuse the Market Multiples Equity Valuation Model - Become aware of the proposition that "equity valuation is an opinion" - Become aware that successful equity analysts know how to "swing it" Assignment Questions ANSWER IN THE TABS 1 Prepare a succinct statement describing Robertson Tool's business risk, making critical ju HINT: Consider the volatility of its revenues and operating expenses, therefore appraising based on the green color-coded parts of the IS-BS Model. 2 What does the Free Cash Flow Equity Valuation model on Q2 tab suggest about the valu HINT: Note that Case Exhibit 4 provides data inputs for the FCF valuation. 3 What does the Market Multiples Valuation model on Q3 tab suggest about the value of M HINT: Case Exhibit 6 provides data inputs for the MM valuation. 4 Considering all of the above, Q1-3, recommend and justify a price for this deal. This is not easy to do. Put yourself in the shoes of the Robertson managers. Who wants it more? The buyer-Monmouth? The seller-Robertson? Who has the strongest negotiating position? Use case facts to guide you. REMEMBER: THERE IS NO SINGLE CORRECT ANSWER IN FINANCIAL ANALYSIS AND DECISION MAKING. THE QUALITY OF YOUR WORK DEPENDS ON THE INTERPRETATION OF MODEL RESULTS COMBINED WITH INFORMATION FROM THE CASE... AND JUDGMENT. DON'T BE AFRAID TO EXERCISE YOUR JUDGMENT! OW DIAGRAM TABS -YOU ARE NOW WORKING WITH EQUITY VALUATION on Week 11 Bb page n Tool; examine titles of case exhibits ol's business risk, making critical judgments. ting expenses, therefore appraising the volatility of its EBIT, l on Q2 tab suggest about the value of Monmouth? r the FCF valuation. 3 tab suggest about the value of Monmouth? stify a price for this deal. Robertson managers. -Robertson? facts to guide you. LYSIS AND DECISION MAKING. TATION OF MODEL RESULTS THUMBNAIL SKETCH: BRIEF ANALYSIS DUPONT RATIOS HISTORICAL RAI/S & B/S FORECAST TIE NORMAL DEBT RATIO WORKING CAPITAL I/S, B/S, & RATIOS STOCK PRICE MKT CAP EXTENDED ANALYSIS FULL RATIOS LIQUIDITY LEVERAGE ASSET USE PROFITABILITY VALUATION GROWTH CAPITAL BUDGETIN OP & CAP NATCF, NPV, IRR, PAYBACK FINANCING EFN ANALYSIS STEPS: 1-HISTORICAL RATIOS 2-K-WACC 3-CAPITAL BUDGETING 4-FORECAST & EFN 5-EQUITY VALUATION 6-FINANCING VALUATION DEBT EQUITY DEBT EQUITY EBIT CHART income risk control mktblty flexblty timing K-WACC ENTERPRISE VALUE USING FREE CASH FLOW MARKET MULTIPLES: P/E, MV/BV, REV, EBIT INCOME STATEMENT Revenue Cost of sales Gross profit Other operating income Other operating expenses Total cost and expenses Operating profit (EBIT) Interest, finance costs Profit before tax Income tax Net profit after tax Dividends Reinvested in the business BALANCE SHEET ASSETS LIABILITIES AND EQUITY Current assets Current liabilities Cash Trade payables Investments Other accruals Trade receivables Tax liabilities Inventories Short-term loans, leases Non-current assets Non-current liabilities Property, plant & equipmenLoans, debt, leases due after 1 year Investment property Retirement benefit obligation Goodwill Deferred tax liabilities Total non-current liabilities WORKING CAPITAL changes spontaneously with revenue ?what levels of ca, cl, s-t loans? CAPITAL BUDGETING ?which projects to accept? FINANCING ?how much debt capacity? COST OF DEBT K-WACC Stockholder's equity (Net worth) Preferred stock Common stock Additional paid-in-capital Retained earnings OPERATING LEVERAGE FINANCIAL LEVERAGE Total assets Total liabilities & equity COST OF EQUITY VALUATION CASH FLOW COST OF CAPITAL Cost of Capital A 1 2 3 WEIGHTED AVERAGE COST OF CAPITAL 4 5 6 7 8 COST OF DEBT: Coupon Rate Marginal Tax Rate Cost of Debt weight of debt B C D Formula 9 10 COST OF EQUITY: 11 Risk-Free Rate 12 Equity Risk Premium 13 Beta 14 Cost of Equity 15 weight of equity 16 17 Weighted-Average Cost of Capital E F G H I CONSIDER THIS AS GIVEN 6.67% given 40.0% given 4.00% b5*(1-b6) 30% 4.10% given 6.00% given 1.00 given 10.10% b11+(b13*b12) 70% 1-b8 Equation BB Corporate,Ex 7 k-d = I x (1- t) d d+e judgment guided by case facts 30-yr Treasury, Ex 7 given, Ex 7 avg Accutant,Snap-On,Stanley equity beta; Ex 6 k-e = R-f + [ x (R-m - R-f)] e d+e R-m - R-f 8.27% (b8*b7)+(b15*b14) (k-d x wt-d)+(k-e x wt-e) Page 5 J Prepare a succinct statement describing Robertson Tool's business risk, making critical judgments. Consider the volatility of its revenues and operating expenses, therefore appraising the volatility of i HINT: Consider the volatility of its revenues and operating expenses, therefore appraising the volati Answer Q1 here: Q1 aking critical judgments. ppraising the volatility of its EBIT. fore appraising the volatility of its EBIT, Q2 A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 B C FREE-CASH-FLOW VALUATION OF EQUITY Assumptions: PERIOD YEAR Profit from operations (EBIT) Income tax rate Depreciation & amortization expense Net working capital from balance sheet forecast Capital expenditures Long-term growth rate Wt-Avg. C of C (K-wacc) Market Value of Debt Number of Shares Redundant Assets 8.27% 12.0 0.584 0.0 PERIOD YEAR 2002 0 D E F G H 2002 0 3 24.0 2003 1 4.2 40.0% 2.3 25.4 4.0 2004 2 5.6 40.0% 2.5 27.0 3.5 2005 3 7.2 40.0% 2.7 28.6 3.6 2006 4 8.2 40.0% 2.9 30.3 3.8 2007 5 8.2 GIVEN IN EX 4 40.0% GIVEN IN EX 4 -STATUATORY RATE, NOT TRUE RATE 2.9 GIVEN IN EX 4 30.3 CALCULATED IN ROW 50 BELOW 2.9 GIVEN IN EX 4 1.5% JUDGMENT FROM COST OF CAPITAL TAB GIVEN IN EX 2 GIVEN IN EX 1 NONE MENTIONED IN THE CASE 15 16 17 18 EBIT after tax (EBIAT) 19 + Depreciation 20 =Cash Flow from Operations (CFFO) 21 +/- Change in Net Working Capital 22 +/- Capital Expenditures 23 =Free Cash Flow (FCF) 24 +Terminal Value (TV) 25 =Sum of FCF + TV 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 Present Value - Market Value of Debt = Valuation of Equity +Redundant assets =Adjusted Value of Equity / Number of Shares Value of Equity per Share 2003 1 2.5 2.3 4.8 (1.4) (4.0) (0.6) 2004 2 3.4 2.5 5.9 (1.6) (3.5) 0.8 2005 3 4.3 2.7 7.0 (1.6) (3.6) 1.8 2006 4 4.9 2.9 7.8 (1.7) (3.8) 2.3 (0.6) 0.8 1.8 2.3 2007 5 4.9 2.9 7.8 0.0 (2.9) 4.9 73.8 78.7 56.1 12.0 44.1 0.0 44.1 0.584 $75.55 FORECAST NWC AS % OF SALES IN ROW 8 sales cost of goods 2002 55.3 37.9 2003 58.6 39.8 2004 62.1 41.6 2005 65.9 43.5 2006 69.8 45.4 2007 69.8 45.4 sales per day cost of goods per day 0.152 0.104 0.161 0.109 0.170 0.114 0.181 0.119 0.191 0.124 0.191 0.124 30.3 30.3 days receivables I USE ANSWER BOX BELOW AT ROW 57 53 44 days inventory 173 45 days payables 46 47 rec 8 18 48 invn pay 2 49 50 NWC 24 25.4 27.0 28.6 51 NWC/Sales 43.4% 52 53 Q2 54 What does the Free Cash Flow Equity Valuation model on Q2 tab suggest about the value of Monmouth? 55 HINT: Note that Case Exhibit 4 provides data inputs for the FCF valuation. 56 57 Answer Q2 here: 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 Page 8 J Q3 A B C D E F G H USE ANSWER BOX BELOW AT ROW 30 1 2 3 4 5 6 7 8 9 MARKET MULTIPLES (COMPARABLES) VALUATION OF EQUITY Acutant Snap On Stanley Market Multiples of Peers Peer A Peer B Peer C Price /revenue market multiple of peer company 0.0 0.0 0.0 Price/EBITDA market multiple of peer company 12.8 14.4 12.9 Price /Earnings market multiple of peer company 15.0 14.4 11.6 Mkt Val of Eq/Book Val mkt mult of Equity of peer 0.0 0.0 0.0 Peer D 0.0 0.0 0.0 0.0 Average Peer E Mkt Mult 0.0 0.0 0.0 13.4 0.0 13.7 0.0 0.0 adjust function 10 11 12 13 14 15 16 if less than 5 Target company data Target company revenue Target company EBITDA Target company earnings (net income) Target company book value of equity Target company number of shares FROM ACTUAL 2002 DATA peers 55.3 1.8 CHANGED TO EBIAT TO FIT EXHIBIT 6 1.3 31.0 0.584 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 Valuation Calculations Valuation based on avg revenue market multiple Valuation based on avg EBITDA market multiple Valuation based on avg earnings market multiple Valuation based on avg book value market multipl from col B from Col G BxC C/B55 Target Co Average Aggregate Per Share Data Mkt Mult Valuation Valuation 55.3 0.0 0.00 $0.00 NO DATA IN EXHIBIT 6 - DISREGARD 1.8 13.4 24.06 $41.20 CHANGED TO EBIAT TO FIT EXHIBIT 6 1.3 13.7 17.77 $30.42 31.0 0.0 0.00 $0.00 NO DATA IN EXHIBIT 6 - DISREGARD Q3 What does the Market Multiples Valuation model on Q3 tab suggest about the value of Monmouth? HINT: Case Exhibit 6 provides data inputs for the MM valuation. Answer Q3 here Page 9 I J K L Summary map FREE CASH FLOW MODEL REVENUE MARKET MULTIPLE EBITDA MARKET MULTIPLE EARNINGS MARKET MULTIPLE BOOK VALUE MARKET MULTIPLE CURRENT MARKET PRICE $10.00 $20.00 $30.00 $40.00 $41.20 $30.42 $23-32 Q4 Considering all of the above, Q1-3, recommend and justify a price for this deal. This is not easy to do. Put yourself in the shoes of the Robertson managers. Who wants it more? The buyer-Monmouth? The seller-Robertson? Who has the strongest negotiating position? Use case facts to guide you. Answer Q4 here: $50.00 $60.00 $75.55 recent closing price $44 influenced by news of possible deal Week 11 Equity Valuation SEE THE IS/BS MODEL & FLOW DIAGRAM TABS -YOU ARE NOW READ: VIDEOS: CASE CFW on Valuation, Chapter 6 The "Big Daddy" Valuation Formula links to videos on Week 11 Bb page A Swinging Attitude for Equity Valuation Success Monmouth, Inc. do not confuse Monmouth and Robertson Tool; examine titles of case exhibi Learning Objectives - Apply financial analysis techniques learned so far to size-up a business - Learn how to use and not abuse the Free Cash Flow Equity Valuation Model - Learn how to use and not abuse the Market Multiples Equity Valuation Model - Become aware of the proposition that "equity valuation is an opinion" - Become aware that successful equity analysts know how to "swing it" Assignment Questions ANSWER IN THE TABS 1 Prepare a succinct statement describing Robertson Tool's business risk, making critical ju HINT: Consider the volatility of its revenues and operating expenses, therefore appraising based on the green color-coded parts of the IS-BS Model. 2 What does the Free Cash Flow Equity Valuation model on Q2 tab suggest about the valu HINT: Note that Case Exhibit 4 provides data inputs for the FCF valuation. 3 What does the Market Multiples Valuation model on Q3 tab suggest about the value of M HINT: Case Exhibit 6 provides data inputs for the MM valuation. 4 Considering all of the above, Q1-3, recommend and justify a price for this deal. This is not easy to do. Put yourself in the shoes of the Robertson managers. Who wants it more? The buyer-Monmouth? The seller-Robertson? Who has the strongest negotiating position? Use case facts to guide you. REMEMBER: THERE IS NO SINGLE CORRECT ANSWER IN FINANCIAL ANALYSIS AND DECISION MAKING. THE QUALITY OF YOUR WORK DEPENDS ON THE INTERPRETATION OF MODEL RESULTS COMBINED WITH INFORMATION FROM THE CASE... AND JUDGMENT. DON'T BE AFRAID TO EXERCISE YOUR JUDGMENT! OW DIAGRAM TABS -YOU ARE NOW WORKING WITH EQUITY VALUATION on Week 11 Bb page n Tool; examine titles of case exhibits ool's business risk, making critical judgments. ting expenses, therefore appraising the volatility of its EBIT, el on Q2 tab suggest about the value of Monmouth? or the FCF valuation. 3 tab suggest about the value of Monmouth? ustify a price for this deal. Robertson managers. r-Robertson? e facts to guide you. LYSIS AND DECISION MAKING. TATION OF MODEL RESULTS THUMBNAIL SKETCH: BRIEF ANALYSIS DUPONT RATIOS HISTORICAL RAI/S & B/S FORECAST TIE NORMAL DEBT RATIO WORKING CAPITAL I/S, B/S, & RATIOS STOCK PRICE MKT CAP EXTENDED ANALYSIS FULL RATIOS LIQUIDITY LEVERAGE ASSET USE PROFITABILITY VALUATION GROWTH CAPITAL BUDGETIN OP & CAP NATCF, NPV, IRR, PAYBACK FINANCING EFN ANALYSIS STEPS: 1-HISTORICAL RATIOS 2-K-WACC 3-CAPITAL BUDGETING 4-FORECAST & EFN 5-EQUITY VALUATION 6-FINANCING VALUATION DEBT EQUITY DEBT EQUITY EBIT CHART income risk control mktblty flexblty timing K-WACC ENTERPRISE VALUE USING FREE CASH FLOW MARKET MULTIPLES: P/E, MV/BV, REV, EBIT INCOME STATEMENT Revenue Cost of sales Gross profit Other operating income Other operating expenses Total cost and expenses Operating profit (EBIT) Interest, finance costs Profit before tax Income tax Net profit after tax Dividends Reinvested in the business BALANCE SHEET ASSETS LIABILITIES AND EQUITY Current assets Current liabilities Cash Trade payables Investments Other accruals Trade receivables Tax liabilities Inventories Short-term loans, leases Non-current assets Non-current liabilities Property, plant & equipmenLoans, debt, leases due after 1 year Investment property Retirement benefit obligation Goodwill Deferred tax liabilities Total non-current liabilities WORKING CAPITAL changes spontaneously with revenue ?what levels of ca, cl, s-t loans? CAPITAL BUDGETING ?which projects to accept? FINANCING ?how much debt capacity? COST OF DEBT K-WACC Stockholder's equity (Net worth) Preferred stock Common stock Additional paid-in-capital Retained earnings OPERATING LEVERAGE FINANCIAL LEVERAGE Total assets Total liabilities & equity COST OF EQUITY VALUATION CASH FLOW COST OF CAPITAL Cost of Capital A 1 WEIGHTED AVERAGE COST OF CAPITAL B C D E F G H I CONSIDER THIS AS GIVEN 2 Formula 3 4 5 6 7 8 COST OF DEBT: Coupon Rate Marginal Tax Rate Cost of Debt weight of debt 6.67% given 40.0% given 4.00% b5*(1-b6) 30% Equation BB Corporate,Ex 7 k-d = I x (1- t) d d+e judgment guided by case facts 9 10 COST OF EQUITY: 11 Risk-Free Rate 12 13 14 15 Equity Risk Premium Beta Cost of Equity weight of equity 4.10% given 6.00% given 1.00 given 10.10% b11+(b13*b12) 70% 1-b8 30-yr Treasury, Ex 7 given, Ex 7 avg Accutant,Snap-On,Stanley equity beta; Ex 6 k-e = R-f + [ x (R-m - R-f)] e d+e R-m - R-f 16 17 Weighted-Average Cost of Capital 8.27% (b8*b7)+(b15*b14) (k-d x wt-d)+(k-e x wt-e) Page 5 J Prepare a succinct statement describing Robertson Tool's business risk, making critical judgments. Consider the volatility of its revenues and operating expenses, therefore appraising the volatility of HINT: Consider the volatility of its revenues and operating expenses, therefore appraising the volat Answer Q1 here: The securities of the Robertson Tool are low volatile since price changes steadily over a period of time. Revenues and operating expenses of the company are high volatile since they are changing drastically. EBIT is indicative of high growth of the company in future since it is showing signs of increment existence of high leverage in the company is a business risk which the management must attend to. pre-investment analysis is required Q1 s risk, making critical judgments. efore appraising the volatility of its EBIT. s, therefore appraising the volatility of its EBIT, y over a period of time. are changing drastically. ns of increment ment must attend to. Q2 A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 B C FREE-CASH-FLOW VALUATION OF EQUITY Assumptions: PERIOD YEAR Profit from operations (EBIT) Income tax rate Depreciation & amortization expense Net working capital from balance sheet forecast Capital expenditures Long-term growth rate Wt-Avg. C of C (K-wacc) Market Value of Debt Number of Shares Redundant Assets 8.27% 12.0 0.584 0.0 PERIOD YEAR 2002 0 D E F G H 2002 0 3 24.0 2003 1 4.2 40.0% 2.3 25.4 4.0 2004 2 5.6 40.0% 2.5 27.0 3.5 2005 3 7.2 40.0% 2.7 28.6 3.6 2006 4 8.2 40.0% 2.9 30.3 3.8 2007 5 8.2 GIVEN IN EX 4 40.0% GIVEN IN EX 4 -STATUATORY RATE, NOT TRUE RATE 2.9 GIVEN IN EX 4 30.3 CALCULATED IN ROW 50 BELOW 2.9 GIVEN IN EX 4 1.5% JUDGMENT FROM COST OF CAPITAL TAB GIVEN IN EX 2 GIVEN IN EX 1 NONE MENTIONED IN THE CASE 15 16 17 2003 1 2.5 2.3 4.8 (1.4) (4.0) (0.6) 2004 2 3.4 2.5 5.9 (1.6) (3.5) 0.8 2005 3 4.3 2.7 7.0 (1.6) (3.6) 1.8 2006 4 4.9 2.9 7.8 (1.7) (3.8) 2.3 (0.6) 0.8 1.8 2.3 2007 5 4.9 2.9 7.8 0.0 (2.9) 4.9 73.8 78.7 2002 55.3 37.9 2003 58.6 39.8 2004 62.1 41.6 2005 65.9 43.5 2006 69.8 45.4 2007 69.8 45.4 0.152 0.104 0.161 0.109 0.170 0.114 0.181 0.119 0.191 0.124 0.191 0.124 18 EBIT after tax (EBIAT) 19 + Depreciation 20 =Cash Flow from Operations (CFFO) 21 +/- Change in Net Working Capital 22 +/- Capital Expenditures 23 =Free Cash Flow (FCF) 24 +Terminal Value (TV) 25 =Sum of FCF + TV 26 27 Present Value 28 - Market Value of Debt 29 = Valuation of Equity 30 +Redundant assets 31 =Adjusted Value of Equity 32 / Number of Shares 33 Value of Equity per Share 34 35 36 FORECAST NWC AS % OF SALES IN ROW 8 37 sales 38 cost of goods 39 40 sales per day 41 cost of goods per day 42 43 days receivables I USE ANSWER BOX BELOW AT ROW 57 56.1 12.0 44.1 0.0 44.1 0.584 $75.55 53 44 days inventory 173 45 days payables 46 47 rec 8 48 invn 18 49 pay 2 50 NWC 24 25.4 27.0 28.6 30.3 51 NWC/Sales 43.4% 52 53 Q2 54 What does the Free Cash Flow Equity Valuation model on Q2 tab suggest about the value of Monmouth? 55 HINT: Note that Case Exhibit 4 provides data inputs for the FCF valuation. 56 57 Answer Q2 here: 58 since the Free cash flow Valution model gives high figure on the company then it means there is a better long time survival. 59 also the company enjoys a large market share and has positive reputation. 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 Page 8 30.3 J Q3 A B C D E F G H USE ANSWER BOX BELOW AT ROW 30 1 2 3 4 5 6 7 8 9 MARKET MULTIPLES (COMPARABLES) VALUATION OF EQUITY Acutant Snap On Stanley Market Multiples of Peers Peer A Peer B Peer C Price /revenue market multiple of peer company 0.0 0.0 0.0 Price/EBITDA market multiple of peer company 12.8 14.4 12.9 Price /Earnings market multiple of peer company 15.0 14.4 11.6 Mkt Val of Eq/Book Val mkt mult of Equity of peer co 0.0 0.0 0.0 Average Peer E Mkt Mult 0.0 0.0 0.0 13.4 0.0 13.7 0.0 0.0 adjust function Peer D 0.0 0.0 0.0 0.0 10 if less than 5 11 Target company data 12 Target company revenue 13 Target company EBITDA 14 Target company earnings (net income) 15 Target company book value of equity 16 Target company number of shares 17 18 19 20 Valuation Calculations 21 Valuation based on avg revenue market multiple 22 Valuation based on avg EBITDA market multiple 23 Valuation based on avg earnings market multiple 24 Valuation based on avg book value market multiple 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 FROM ACTUAL 2002 DATA peers 55.3 1.8 CHANGED TO EBIAT TO FIT EXHIBIT 6 1.3 31.0 0.584 from col B from Col G BxC C/B55 Target Co Average Aggregate Per Share Data Mkt Mult Valuation Valuation 55.3 13.9 768.67 $39.30 NO DATA IN EXHIBIT 6 - DISREGARD 1.8 13.4 24.06 $41.20 CHANGED TO EBIAT TO FIT EXHIBIT 6 1.3 13.7 17.77 $30.42 31.0 13.3 412.30 $25.77 NO DATA IN EXHIBIT 6 - DISREGARD Q3 HINT: Case Exhibit 6 provides data inputs for the MM valuation. Answer Q3 here The value per share is high that represents more confidence from the shareholders on the company performance. Page 9 I J K L Summary map FREE CASH FLOW MODEL REVENUE MARKET MULTIPLE EBITDA MARKET MULTIPLE EARNINGS MARKET MULTIPLE BOOK VALUE MARKET MULTIPLE CURRENT MARKET PRICE $10.00 $20.00 $30.00 $40.00 $50.00 $41.20 $30.42 $23-32 Q4 Considering all of the above, Q1-3, recommend and justify a price for this deal. This is not easy to do. Put yourself in the shoes of the Robertson managers. Who wants it more? The buyer-Monmouth? The seller-Robertson? Who has the strongest negotiating position? Use case facts to guide you. Answer Q4 here: considering the free cahs flow is $75.55 and current price is $44 then the best price from this deal will be $45.67 The seller Robertson wants more since he wants the value of the share to be high even after the sale. Buyer-Monmouth has the strongest negotiating position since he can use the current share price and various factor $60.00 $75.55 recent closing price $44 influenced by news of possible deal his deal will be $45.67 e price and various factors in the market to bargain