Question
***PLEASE SHOW ALL CALCULATIONS*** Dupont Performance Coatings Using Exhibit 9, estimate the dollar increase in DPCs value, relative to the stand-alone value, if a PE
***PLEASE SHOW ALL CALCULATIONS***
Dupont Performance Coatings
Using Exhibit 9, estimate the dollar increase in DPCs value, relative to the stand-alone value, if a PE fund can obtain:
a. 5% revenue growth per year (instead of 4%) in each of the next 5 years and improve the operating margin to be 12% (instead of 10%)
b. assume part a and that the division can be sold at 7.5 X EBITDA in 5 years (for day 2)
c. assume that debt financing equal to 5X forward EBITDA can be obtained. Assume that all cash available is used to pay down debt and after 5 years the firm reverts to an all-equity financed firm.
steps calculate debt based on forward EBITDA (EBITDA one year from today) calculate interest expense calculate EBIT and residual cash flow start the following year making adjustments calculate interest tax sheild APV=unlevered CEPV interest tax shield A B F G H I J K L M 1 D E Stand-Alone Valuation (dollars in millions) PPG Industries Actual 2011 2012E 10.9% 4.1% 11.2% 11.0% 7.3 2 3 4 5 6 7 8 Metric Projected 2013E 4.3% 12.0% Sales Growth (%) EBIT Margin (Pretax) EV/EBITDA 2012 () Metric 2015E 4.0% 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 DuPont Performance Coatings Closing 2011A 2012E 12.5% 4.0% $104 $ $115 6.3% 10.0% 25% 25% $80 $115 15.0% Sales Growth (%) Depreciation and Amortization EBIT Margin (Pretax) Tax Rate Capital Expenditures Net Working Capital (%) 2013E 4.0% $118 10.0% 25% $122 15.0% Projected 2014E 4.0% $122 10.0% 25% $132 15.0% ebit/sales 2016E 4.0% $130 10.0% 25% $150 15.0% $125 10.0% 25% $144 15.0% nwc/sales 7.0 N/A Terminal EBITDA Multiple (x)? Debt/EBITDA 2012(X) Debt Blended Interest Rate on Debt Unlevered Cost of Equity 6.75% 11.2% B D E F G H I J K L M N O P Q 4,452.24 2011A $4,281 $372 $104 $268 APV Analysis Closing 2012E $4,452 $560 $115 $445 $0 $445 ($111) 445.20 2013E $4,630 $581 $118 $463 $0 $463 ($116 $347 ($27) ($122) $317 25 26 27 Net Sales 28 EBITDA 29 Depreciation and Amortization 30 Pretax Operating Income (EBIT) 31 Interest Expense 32 Earnings before Taxes 33 Taxes 34 Net Income 35 Increase in Net Working Capital 36 Capital Expenditures 37 Residual (Levered) Cash Flow 38 39 Unlevered Free Cash Flow 40 Terminal Value 41 Unlevered FCF, including TV 42 Enterprise Value (EV) 43 Interest Tax Shield 44 PV Tax Shield 45 EV with Tax Shield 2014E $4,816 $604 $122 $482 $0 $482 ($120) $361 ($28) ($132) $323 2015E $5,008 $626 $125 $501 $0 $501 ($125) $376 ($29) ($144) $327 2016E $5,208 $651 $130 $521 $ $0 $521 ($130) $391 ($30) ($150) $334 ($26) ($115) $308 NI= EBIT - interest expense change NWC NWC 2012 667.84 =NI +depre-tax - NWC - CAPEX NWC2011 642.15 25.69 $341 $308 $317 $323 $327 $341 $4,738 $5,079 ebit +depr-tax-NWC - CAPEX ebitda(1+g) * Ebitda multiple $308 $317 $323 $327 $3,970 $3,970 steps calculate debt based on forward EBITDA (EBITDA one year from today) calculate interest expense calculate EBIT and residual cash flow start the following year making adjustments calculate interest tax sheild APV=unlevered CEPV interest tax shield A B F G H I J K L M 1 D E Stand-Alone Valuation (dollars in millions) PPG Industries Actual 2011 2012E 10.9% 4.1% 11.2% 11.0% 7.3 2 3 4 5 6 7 8 Metric Projected 2013E 4.3% 12.0% Sales Growth (%) EBIT Margin (Pretax) EV/EBITDA 2012 () Metric 2015E 4.0% 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 DuPont Performance Coatings Closing 2011A 2012E 12.5% 4.0% $104 $ $115 6.3% 10.0% 25% 25% $80 $115 15.0% Sales Growth (%) Depreciation and Amortization EBIT Margin (Pretax) Tax Rate Capital Expenditures Net Working Capital (%) 2013E 4.0% $118 10.0% 25% $122 15.0% Projected 2014E 4.0% $122 10.0% 25% $132 15.0% ebit/sales 2016E 4.0% $130 10.0% 25% $150 15.0% $125 10.0% 25% $144 15.0% nwc/sales 7.0 N/A Terminal EBITDA Multiple (x)? Debt/EBITDA 2012(X) Debt Blended Interest Rate on Debt Unlevered Cost of Equity 6.75% 11.2% B D E F G H I J K L M N O P Q 4,452.24 2011A $4,281 $372 $104 $268 APV Analysis Closing 2012E $4,452 $560 $115 $445 $0 $445 ($111) 445.20 2013E $4,630 $581 $118 $463 $0 $463 ($116 $347 ($27) ($122) $317 25 26 27 Net Sales 28 EBITDA 29 Depreciation and Amortization 30 Pretax Operating Income (EBIT) 31 Interest Expense 32 Earnings before Taxes 33 Taxes 34 Net Income 35 Increase in Net Working Capital 36 Capital Expenditures 37 Residual (Levered) Cash Flow 38 39 Unlevered Free Cash Flow 40 Terminal Value 41 Unlevered FCF, including TV 42 Enterprise Value (EV) 43 Interest Tax Shield 44 PV Tax Shield 45 EV with Tax Shield 2014E $4,816 $604 $122 $482 $0 $482 ($120) $361 ($28) ($132) $323 2015E $5,008 $626 $125 $501 $0 $501 ($125) $376 ($29) ($144) $327 2016E $5,208 $651 $130 $521 $ $0 $521 ($130) $391 ($30) ($150) $334 ($26) ($115) $308 NI= EBIT - interest expense change NWC NWC 2012 667.84 =NI +depre-tax - NWC - CAPEX NWC2011 642.15 25.69 $341 $308 $317 $323 $327 $341 $4,738 $5,079 ebit +depr-tax-NWC - CAPEX ebitda(1+g) * Ebitda multiple $308 $317 $323 $327 $3,970 $3,970Step by Step Solution
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