i have posted the question and the answer. I just want to know how is the formulas bellow calculed?
- PV of FCFE discounted of 16.9%
-terminal stock of value
-PV of terminal Value if discounted 16.9%
- Total PV of FCFE
-Total Value of firm
(please show im excel how were these calculated)
2. Finance Genius is evaluating Taiwan Semiconductor Manufacturing Co., Ltd., (NYSETSM headquartered in Hsinchu, Taiwan In 2020, when Genius is performing his analysis, the company and indeed, the whole industry-is unprofitable. Furthermore, TSM pays in dividends on its common shares. Finance Genius decides to value TSM using his forecasts of FCFE and makes the following assumptions: The company has 17.0 billion outstanding shares. Sales will be $5.5 billion in 2021, increasing at 28 percent annually for the next four years (though 2025) Net income will be 32 percent of sales Investment in fixed assets (or Capex) will be 35 percent of sales, investment in working capital will be 6 percent of sales, and depreciation will be 9 percent of sales. 20 percent of the investment in assets will be financed with debt. Interest expenses will be only 2 percent of sales The tax rate will be 10 percent TSM's beta is 2.1, the risk-free government bond rate is 6.4 percent, and the equity risk premium is 5.0 percent. At the end of 2025, Finance Genius projects TSM will sell for 18 times earnings, What is the value of one ordinary share of Taiwan Semiconductor Manufacturing Co., Ltd.? . . nin SOLUTION TO PRACTICE PROBLEM 2 1. The required rate of return found with the CAPM is = E(R) =Rx+ BLE(Rid - RF] = 6.4% +2.1(5.0%) = 16.9% The table below shows the values of sales, net income, capital expenditures less depreciation, and investments in working capital. FCFE equals net income less the investments financed with equity: FCFE = Net income -(1-DR)(Capital Expenditures - Depreciation) - (1 - DR)(Investment in working capital) Because 20 percent of new investments are financed with debt, 80 percent of the investments are financed with equity. reducing FCFE by 80 percent of (Capital expenditures - Depreciation) and 80 percent of the investment in working capital. (All data in S billions) 2021 2022 2023 2024 2025 Year Sales (growing at 28% Net income = 32% of sales ECIn-Dep = (35%-99) X Sales WCIng - (6%oof sales) 0.80 X (FCIny: - Dep + WCins) $5.500 $7.040 $9.011 $11.534 $14.764 1.760 2.253 2.884 3.691 4.724 1.430 1.830 2.343 2.999 3.839 0.330 0.422 0.541 0.692 0.886 1.408 1.802 2.307 2.953 3.780 0.352 0.451 0.577 0.738 0.945 FCFE=NI-0.80 X (EClux - Dep + WCInw) PV of FCFE discounted at 16.9% 0.301 0.330 0.361 0.395 0.433 $85.032 Terminal stock value PV of terminal value discounted at 16.9% 38.950 Total PV of FCFE 1.820 40.770 Total value of firm The terminal stock value is 18 times the earnings in 2025, or 18 X $4.724 billion $85.03 billion. The present value of the terminal value ($38.95 billion) plus the present value of the first five years' FCFE (51.82 billion) is $40.77 billion. Because there are 17 billion outstanding shares, the value per ordinary share is $2.398
