Question
Please answer the following questions in Excel: - Your firm is attempting to value Bulldog Cable Company (BCC), a mid-sized regional cable company with operations
Please answer the following questions in Excel:
- Your firm is attempting to value Bulldog Cable Company (BCC), a mid-sized regional cable company with operations in Utah and Wyoming. Analysts at your firm have made the following estimates (in millions; assume a December 31st year end, that all cash flows occur at the end of the year, and that the 2016 cash flow is exactly one year away):
2016 | 2017 | 2018 | 2019 | 2020 | 2021 | |
Net sales | $450 | $518 | $555 | $600 | $643 | |
Selling and administrative expenses | $45 | $53 | $60 | $68 | $73 | |
Interest | $28 | $26 | $27 | $25 | $22 | |
Depreciation | $21 | $22 | $26 | $20 | $19 | |
Net working capital | $800 | $850 | $930 | $1,005 | $1,075 | $1,150 |
Other important assumptions: | ||||||
Tax rate: 35% | ||||||
Cost of goods sold as % of sales: 65% | ||||||
BCC's unlevered (or asset) beta: 0.8 | ||||||
Risk-free rate: 3% | ||||||
Market risk premium: 4% Terminal growth rate (g): 2% | ||||||
Pre-tax cost of debt: 5.6% |
BCCs optimal capital structure is 70% debt (and therefore 30% equity). There are no investments in fixed assets (i.e., CAPEX) planned for BCC in the future. Using free cash flow valuation, what is BCCs enterprise value?
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