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The CEO of TPI Inc. considers the possibility to restructure one of the business segments of TPI The analysts at TPI have prepared projections for the operations of the segment. These forecasts are provided in Table A. In addition to that, they have estimated that the cost of capital for this segment would be 14%, while its long-term growth rate would be 7%. Moreover, you know that the tax rate is 38% and the initial invested capital is $70 million. Your task is to perform EVA analysis of the segment (assume the current year is 2007). EBIT Depreciation Increase in Deferred tax Capex ANWC Table A 2008 2009 24.8 28.0 5.8 7.6 0.8 0.6 18.2 12.2 -0.8 -0.8 2010 32.0 9.2 0.7 14.3 1.0 2011 34.0 10.2 0.7 14.3 1.8 2012 37.0 11.0 1.0 12.0 0.0 Hint: NOPAT is EBIT"(1-1) + Increase in Deferred Tax. Exhibit 15.2. WTT Inc. Economic Value Added Valuation WTT Inc. Enterprise Value $1,664 8 in milion $) Machine Tools Unit 2007 2008 2009 2010 2011 2012 2014 2015 254% 12.15 491.123 EBITDA margin NOPAT margin Invested capital Capital tumover Return on capital WACC Return spread 0 30.0% 28.95 27.7 13.0% 4000 412.941 432231 451.742 1.7 175 22515 23.08% 22.77% 9.62% 9.62% 9.62% 12.9% 13.4 12.45 447 224 18 22.40% 20 23.1% 2003 11 1069 100% 524274 544.035 563.58 568054 19 2 21.43% 20.13% 19.31% 22 11.81 19. 8.95 601669 23 23.52% 9. 12.78% Unlevered net income Deferred taxes NOPAT Captal charge EVA Continuation EVA Initial capital PIEVA) 38.2 3.25 91.45 38.48 527 91.812 351 95.322 39.725 56507 94653 GT 103 100.143 3.762 406 43 98.436 101 189 906.204 41581 43.458 43-023 56 855 100593 100.540100358 10046 4666 461 5104 5.6 105 25910553 106.542 106.083 47.246 50 435 52.335 54 217 5801355.095 506 5970 10629 51 1.400.067 4000 3485 745 5624 1,310,9 PVContinuation EVA Business crit value Electronics Unit 2005 2009 2010 2011 2012 2014 2015 540 0 18.0% 17.3% 66% 160.0 170.552 1423 2 203 13 20% 12.58% 10.50 10.50% 2.70% 2.18 16.6% 5.9% 213.67 2.06 12.14% 10.50% 1.64% 15.9% 15.2 5.5% 5.2% 234.364 256.489 2.00 2.12 11.5 10.97% 10.50 10.50% 101 04 14. 15% 14 4.8% 49% 200.56 303.995 330.00 35.000 2.15 2.10 225 10.35 10:52 10.31% 10 10 50% 10 SOS 10 SO'M -15% 124 . 10 50% O EBITDA NOPAT margin Invested capital Capital umover Return on capital WACC Return spread Unlevered net income Deferred taxes NOPAT Capital charge EVA Continuation EVA Initial capital PVEVA) 21.312 1.075 22387 22393 1202 24 895 1654 27 92 1832 29 329 2005 20.10 0.96 21.12 168 4.32 42 2455 23 373 134 2471 2265 24.218 149 25.700 2460 235 185 20414 31 34722 29416 0336 26.932 35 376 200 3.85 3.18 1600 113 S719 650 2369 PVContinuation EVA Business unit value Metal Products Unit 2009 2009 2010 2011 2012 2014 2015 13.9% 45% 518618 EBITDA margin NOPAT margin Invested capital Capital tumover Return on capital WACC Rohur spread -0 13.3% 13.6% 40% 3.6% 3.0% 3600386.525 399.045 411896 13 1.32 5.20% 478% 5-10% 10.00% 10.00% 10.00% 4.80% 5.22% 4.90% 4.3% 38.896 14 5.79% 10.00% 42% 54.25 1425 4.45 44 453098 46778482.668.671 1.30 5.80 5.99% 6.015 61% 10.00% 10.00% 10.00% 100% 4 4.07 1991 390% 5.42% 10.00% 4 58% 10.00% 23.00 26.14 25 315 1541 27307 1.686 1733 Unleveredne income Deferred taxes NOPAT Captal charge 16:38 1.218 17.004 36 1722 1266 18.400 1663 19.030 1.317 20 356 39.504 2074 137 22344 4119 28534 1.602 28.137 45.778 24.455 22517 28.629 43.89 -1826 4531 18297 EVA 20.177 Continuation EVA Ini cap PIEVAJ 3600 (1150) 2440 (1270) 1171 PVContinuation EVA Business unit value Exhibit 15.2. WTT Inc. Economic Value Added Valuation WTT Inc. Enterprise Value $1,664.8 (in Million $) Machine Tools Unit 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 0 400.0 EBITDA margin NOPAT margin Invested capital Capital tumover Return on capital WACC Return spread 30.0% 28.9% 14% 13.6% 412.941 432.231 1.6 1.7 22.5154 23.08% 9.62% 9.62% 12.89% 13.46% 27.7% 13.0% 451.742 1.75 22.77% 9.62% 13.15% 26.6% 12.4% 447 224 1.8 22.40% 9.62% 12.78% 25.4% 12.1% 491.123 1.95 23.52% 9.62% 13.90% 24.3% 23.1% 22.0% 20.9% 11.3% 10.6% 10.0% 9.4% 524 274 544.035 563.586 568.954 1.9 1.9 1.95 2 21.43% 20.13% 19.5198 18.82% 9.62% 9.62% 9.62% 9.62% 11.81% 10.51% 9.89% 9.20% 19.7% 8.9% 601.669 2.1 18.68% 9.62% 9.06% 882 3.25 Unlevered net income Deferred taxes NOPAT Capital charge EVA Continuation EVA Initial capital PVIEVA) 91.45 38.48 62.97 91.812 3.51 96.322 39.725 55,597 94.653 3.782 98.435 41.581 56.855 97.103 4 066 101.169 43.458 57.711 100.843 4.36 105,204 43,023 62.181 100.593 100.549 4.666 4.981 105 259 106,53 47 246 50.435 58 013 55 095 100.838 6.304 106.142 52.336 53.806 100.447 5.636 106.083 54.217 51.866 100.325 5.974 106.299 54.733 51.566 1,409 067 400.0 3485 748.5 562.4 1,310.9 PV[Continuation EVA) Business unit value The CEO of TPI Inc. considers the possibility to restructure one of the business segments of TPI The analysts at TPI have prepared projections for the operations of the segment. These forecasts are provided in Table A. In addition to that, they have estimated that the cost of capital for this segment would be 14%, while its long-term growth rate would be 7%. Moreover, you know that the tax rate is 38% and the initial invested capital is $70 million. Your task is to perform EVA analysis of the segment (assume the current year is 2007). EBIT Depreciation Increase in Deferred tax Capex ANWC Table A 2008 2009 24.8 28.0 5.8 7.6 0.8 0.6 18.2 12.2 -0.8 -0.8 2010 32.0 9.2 0.7 14.3 1.0 2011 34.0 10.2 0.7 14.3 1.8 2012 37.0 11.0 1.0 12.0 0.0 Hint: NOPAT is EBIT"(1-1) + Increase in Deferred Tax. Exhibit 15.2. WTT Inc. Economic Value Added Valuation WTT Inc. Enterprise Value $1,664 8 in milion $) Machine Tools Unit 2007 2008 2009 2010 2011 2012 2014 2015 254% 12.15 491.123 EBITDA margin NOPAT margin Invested capital Capital tumover Return on capital WACC Return spread 0 30.0% 28.95 27.7 13.0% 4000 412.941 432231 451.742 1.7 175 22515 23.08% 22.77% 9.62% 9.62% 9.62% 12.9% 13.4 12.45 447 224 18 22.40% 20 23.1% 2003 11 1069 100% 524274 544.035 563.58 568054 19 2 21.43% 20.13% 19.31% 22 11.81 19. 8.95 601669 23 23.52% 9. 12.78% Unlevered net income Deferred taxes NOPAT Captal charge EVA Continuation EVA Initial capital PIEVA) 38.2 3.25 91.45 38.48 527 91.812 351 95.322 39.725 56507 94653 GT 103 100.143 3.762 406 43 98.436 101 189 906.204 41581 43.458 43-023 56 855 100593 100.540100358 10046 4666 461 5104 5.6 105 25910553 106.542 106.083 47.246 50 435 52.335 54 217 5801355.095 506 5970 10629 51 1.400.067 4000 3485 745 5624 1,310,9 PVContinuation EVA Business crit value Electronics Unit 2005 2009 2010 2011 2012 2014 2015 540 0 18.0% 17.3% 66% 160.0 170.552 1423 2 203 13 20% 12.58% 10.50 10.50% 2.70% 2.18 16.6% 5.9% 213.67 2.06 12.14% 10.50% 1.64% 15.9% 15.2 5.5% 5.2% 234.364 256.489 2.00 2.12 11.5 10.97% 10.50 10.50% 101 04 14. 15% 14 4.8% 49% 200.56 303.995 330.00 35.000 2.15 2.10 225 10.35 10:52 10.31% 10 10 50% 10 SOS 10 SO'M -15% 124 . 10 50% O EBITDA NOPAT margin Invested capital Capital umover Return on capital WACC Return spread Unlevered net income Deferred taxes NOPAT Capital charge EVA Continuation EVA Initial capital PVEVA) 21.312 1.075 22387 22393 1202 24 895 1654 27 92 1832 29 329 2005 20.10 0.96 21.12 168 4.32 42 2455 23 373 134 2471 2265 24.218 149 25.700 2460 235 185 20414 31 34722 29416 0336 26.932 35 376 200 3.85 3.18 1600 113 S719 650 2369 PVContinuation EVA Business unit value Metal Products Unit 2009 2009 2010 2011 2012 2014 2015 13.9% 45% 518618 EBITDA margin NOPAT margin Invested capital Capital tumover Return on capital WACC Rohur spread -0 13.3% 13.6% 40% 3.6% 3.0% 3600386.525 399.045 411896 13 1.32 5.20% 478% 5-10% 10.00% 10.00% 10.00% 4.80% 5.22% 4.90% 4.3% 38.896 14 5.79% 10.00% 42% 54.25 1425 4.45 44 453098 46778482.668.671 1.30 5.80 5.99% 6.015 61% 10.00% 10.00% 10.00% 100% 4 4.07 1991 390% 5.42% 10.00% 4 58% 10.00% 23.00 26.14 25 315 1541 27307 1.686 1733 Unleveredne income Deferred taxes NOPAT Captal charge 16:38 1.218 17.004 36 1722 1266 18.400 1663 19.030 1.317 20 356 39.504 2074 137 22344 4119 28534 1.602 28.137 45.778 24.455 22517 28.629 43.89 -1826 4531 18297 EVA 20.177 Continuation EVA Ini cap PIEVAJ 3600 (1150) 2440 (1270) 1171 PVContinuation EVA Business unit value Exhibit 15.2. WTT Inc. Economic Value Added Valuation WTT Inc. Enterprise Value $1,664.8 (in Million $) Machine Tools Unit 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 0 400.0 EBITDA margin NOPAT margin Invested capital Capital tumover Return on capital WACC Return spread 30.0% 28.9% 14% 13.6% 412.941 432.231 1.6 1.7 22.5154 23.08% 9.62% 9.62% 12.89% 13.46% 27.7% 13.0% 451.742 1.75 22.77% 9.62% 13.15% 26.6% 12.4% 447 224 1.8 22.40% 9.62% 12.78% 25.4% 12.1% 491.123 1.95 23.52% 9.62% 13.90% 24.3% 23.1% 22.0% 20.9% 11.3% 10.6% 10.0% 9.4% 524 274 544.035 563.586 568.954 1.9 1.9 1.95 2 21.43% 20.13% 19.5198 18.82% 9.62% 9.62% 9.62% 9.62% 11.81% 10.51% 9.89% 9.20% 19.7% 8.9% 601.669 2.1 18.68% 9.62% 9.06% 882 3.25 Unlevered net income Deferred taxes NOPAT Capital charge EVA Continuation EVA Initial capital PVIEVA) 91.45 38.48 62.97 91.812 3.51 96.322 39.725 55,597 94.653 3.782 98.435 41.581 56.855 97.103 4 066 101.169 43.458 57.711 100.843 4.36 105,204 43,023 62.181 100.593 100.549 4.666 4.981 105 259 106,53 47 246 50.435 58 013 55 095 100.838 6.304 106.142 52.336 53.806 100.447 5.636 106.083 54.217 51.866 100.325 5.974 106.299 54.733 51.566 1,409 067 400.0 3485 748.5 562.4 1,310.9 PV[Continuation EVA) Business unit value
