MBA 830 Unit 3 Case Study Appendix A MBA 830 UNIT 3 CASE STUDY The owner of a private firm has requested that you estimate the value of the firm so that it can be marketed for sale. The firm creates custom, made-to-order furniture. The firm's most rocent resalts are shown in Appendix A Furniture Company Income & FCF Analysis in thousands Management expects revenues, cost of goods sold, operating expenses, depreciation (and amortization), and capital expenditures to grow 20% annually for the next five years with taxes remaining at 40% for each year. Balance sheet items in the most recent year include S10 million of outstanding interest-bearing debt and $10 million book value of equity. The outstanding debe is expected to remain constant for this analysis, and management anticipates no changes in working capital Free cash flows are estimated to grow at 5% after the five year period. Most Recent Yrar s 20,000 of Goods Sold Gross Profit Margin IGrss Prote Mrpn% Industry averages for market value of oquity are three times book value, for beta are 1 30, and for 4,500 market debt ratio are 20%. Average market multiple for the industry is 7 times net income, and the Treasury bond rate is assumed to be 7% 22.5% 2,000 500 Gencral Operating Expenses Based on this information and the information covered in Unit 3, peepare a DCF and Market Multiple analysis (in Excel) to help the owser estimate firm value. Please make sare to include your calculations for the following items on & Amortization 3.00 Annual Free Cash Flows Interest Expenses 1,000 . Cost of debt Cost of equity Income before Taxes WACC . Terminal Value 400 Firm Value, Debt Value, and Equity Value ax Rate Would the owner prefer the DCF or Market Multiple approach to valuation? Why? Net Income S 600 Add: After Tax Interest Expenses Less: Capital Expenditures 600 (1,000) 500 Add: Decrease (Increase) in AR Add: Decrease (Increase) in Inv Add: Increase (Decrease) in AP nlevered Free Cash Flows S 700 MBA 830 Unit 3 Case Study Appendix A MBA 830 UNIT 3 CASE STUDY The owner of a private firm has requested that you estimate the value of the firm so that it can be marketed for sale. The firm creates custom, made-to-order furniture. The firm's most rocent resalts are shown in Appendix A Furniture Company Income & FCF Analysis in thousands Management expects revenues, cost of goods sold, operating expenses, depreciation (and amortization), and capital expenditures to grow 20% annually for the next five years with taxes remaining at 40% for each year. Balance sheet items in the most recent year include S10 million of outstanding interest-bearing debt and $10 million book value of equity. The outstanding debe is expected to remain constant for this analysis, and management anticipates no changes in working capital Free cash flows are estimated to grow at 5% after the five year period. Most Recent Yrar s 20,000 of Goods Sold Gross Profit Margin IGrss Prote Mrpn% Industry averages for market value of oquity are three times book value, for beta are 1 30, and for 4,500 market debt ratio are 20%. Average market multiple for the industry is 7 times net income, and the Treasury bond rate is assumed to be 7% 22.5% 2,000 500 Gencral Operating Expenses Based on this information and the information covered in Unit 3, peepare a DCF and Market Multiple analysis (in Excel) to help the owser estimate firm value. Please make sare to include your calculations for the following items on & Amortization 3.00 Annual Free Cash Flows Interest Expenses 1,000 . Cost of debt Cost of equity Income before Taxes WACC . Terminal Value 400 Firm Value, Debt Value, and Equity Value ax Rate Would the owner prefer the DCF or Market Multiple approach to valuation? Why? Net Income S 600 Add: After Tax Interest Expenses Less: Capital Expenditures 600 (1,000) 500 Add: Decrease (Increase) in AR Add: Decrease (Increase) in Inv Add: Increase (Decrease) in AP nlevered Free Cash Flows S 700
