how can i resolve step 4. show how to use the formula. i am receving big numbers
On a late November morning, a boutique investment firm in Chicago approached the owner of a Solar manufacturing company, about his interest in selling the firm. Mr. Solar, owner of the company, had never seriously though of selling the firm in the past, nor had he thought about a valuation for his company. He was excited about the interest shown by the investment firm, yet he was skeptical about the offer he might be presented by the investment firm. Mr. Solar invited his two partners, Mr. Panel and Mr. Battery to discuss this unsolicited proposal. The three partners believed that their technology has the most potential for the U.S. market. Their technology costs less to produce compared to others because of its process. The two partners, Mr. Panel and Mr. Battery, were very excited about the solicitation and wanted to find out the valuation of their company. Mr. Panel argues that the company was generating roughly $250M yearly for nearly 20 years, therefore the valuation should be a simple math (250 x 20). Mr. Battery does not agree with Mr. Panel for the simple fact that there are more factors that are crucial to a valuation of a company. He argues that the cash flows in the future are worth less than the cash flow generated today, therefore they should be discounted. He believes that revenues should increase by 3-5% yearly. Mr. Panel asks you to prepare a 7-year cash flow projection. The company has no debt; therefore, the discount rate should be what the owners expected to earn from the business, which was 12% return on their equity investment. Instruction This case is about finding the true value of the firm by applying the financial analysis tools covered in this class: present value concept, calculating cash flows, ratio analysis, and financial statement analysis. Step 1 (10pts) - Calculate the company's common size financial statements. Step 2 (15pts) - Project the company's financial statements until 2019 using a growth rate of 7% year over year. Step 3 (10pts) - Calculate 2 ratios from each category provided on Canvas Step 4 (15pts) - You will need to calculate the Free Cash Flow available to the firm after all operating expenses and capital expenditure have been accounted for: FCFF = EBIT(1-Tax) +/- Depreciation & Amortization +/- Change in NWC +/- Change in CAPEX The company spends $50MM in CAPEX vearly (change in CAPEX) A Solar Manufacturing Company. Bestandtes Statement 2010 Sales COGS Gross Margin 2009 $6,833.0 230 2,5100 LED 2452 56,3450 12.0 2,233.0 2012 562340 LALO 2.193.0 100 Marketing & Seling GSA EBITDA 12100 586.D 7140 1190 5:00 5600 LOBO 5690 5940 590.0 1400 D&A EBIT 250D 5640 2670 5210 150.0 1560 438.0 Taxes Net Income 2200 3440 205.0 306 273.0 172.0 266.0 Exhibit 1 - Income Statement (2009-2012) A Cash Account Receivables Inventory Prepaid Expenses Current Assets Net Fixed Assets Total Assets Liabilities and Net worth Accounts Payables Acored penses Current abilities A Solar Manufacturing Company-Balance Sheet 2002 2011 1210 400 100 19 2.045.0 1.1270 1100 10100 970 SO 10 $21730 $3,1700 $3,134.0 22100 2.245.0 5330 5.400 2012 1400 2.121.0 1.06. 950 $3.421.0 2090.0 55 LOSED 1220 3430 $1,4010 1000 1740 $1,1740 999 142.0 $1.1410 $1.250 quity 3.9700 4350 4.2560 3700 55 54.50 Lives and Net Worth Exhibit 2- Balance Sheet (2009-2012) 2012 140.0 2,121.0 1,065.00 95.0 $3,421.0 2,090.0 A Solar Manufacturing Company - Balance Sheet Assets 2009 2010 2011 Cash 121.0 83.0 40.0 Account Receivables 1,828.0 1,896.0 2,045.0 Inventory 1,127.0 1,101.0 1,010.0 Prepaid Expenses 97.0 90.0 89.0 Current Assets $3,173.0 $3,170.0 $3,184.0 Net Fixed Assets 2,210.0 2,250.0 2,246.0 Total Assets 5.383.0 5.420.0 5.430.0 Liabilities and Net worth Accounts Payables 1270 1,098.0 1000 Accrued Epenses 143.0 187.0 174.0 Current Liabilities $1,413.0 $1,285.0 $1,174.0 Equity 3,970.0 4,135.0 4,256.0 Liabilities and Net Worth $5,383.0 $5,419,0 $3,580.0 Exhibit 2 - Balance Sheet (2009 - 2012) 5,511.0 999 142.0 $1,141.0 4,370.0 $4,500.00 A Solar Manufacturing Company - Profit and Loss Statement 2010 Sales COGS Gross Margin 2009 $6,833.0 4,323.0 2,510.0 $6,755.0 4.298.0 2,457.0 2011 $6,345.0 4.112.0 2,233.0 2012 $6,234.0 4.041.0 2,193.0 Marketing & Selling G&A EBITDA 1,210.0 586.0 714.0 1,199.0 570.0 688.0 1,083.0 560.0 590.0 1,030.0 569.0 594.0 156.0 D&A |EBIT 150.0 564.0 167.0 521.0 140.0 450.0 438.0 Taxes Net Income 220.0 344.0 205.0 316.0 177.0 273.0 172.0 266.0 Exhibit 1 - Income Statement (2009-2012) Assets Cash Account Receivables Inventory Prepaid Expenses Current Assets Net Fixed Assets Total Assets Liabilities and Net worth Accounts Payables Accrued Epenses Current Liabilities 2009 121.0 1,828.0 1,127.0 97.0 $3,173.0 2,210.0 2010 83.0 1,896.0 1,101.0 90.0 $3,170.0 2,250.0 5.420,0 2011 40.0 2,045.0 1,010.0 89.0 $3,184.0 2,246.0 5.430,0 2012 140.0 2,121.00 1,065.0 95.0 $3,421.00 2,090.0 5,511.0 5.383.0 1270 143.0 $1,413.0 1,098.0 187.0 $1,285.0 1000 174.0 $1,174.0 999 142.0 $1,141.01 4,256.0 4,370.01 Equity Liabilities and Net Worth Fxhihit 2 - Ralance Sheet (2009 3,970.0 $5.383.0 4,135.0 $5.419.0 $3.580.0 $4,500.00 A Solar Manufacturing Company - Profit and Loss Statement Sales COGS Gross Margin 2009 $6,833.0 4,323.0 2,510.0 2010 $6,755.0 4.298.0 2,457.0 2011 $6,345.0 4.112.0 2,233.0 2012 $6,234.0 4.041.0 2,193.0 Marketing & Selling G&A EBITDA 1,210.0 586.0 714.0 1,199.0 570.0 688.0 1,083.0 560.0 590.0 1,030.0 569.0 594.0 156.0 D&A EBIT 150.0 564.0 167.0 521.0 140.0 450.0 438.0 Taxes Net Income 220.0 344.0 205.0 316.0 177.0 273.0 172.0 266.0 Exhibit 1 - Income Statement (20112012
