Problem 1. ABC company has put together the following projection: 2008 Actual 2007 2,100 1.50% 29 2,000 2.00% 32.60 Forecast 2009 2,200 2.00% 34.20 2010 2,300 3.00% 32.90 2011 2,500 4.00% 32.00 2012 2,600 4.00% 31.50 Sales EBITDA margin Depreciation Increase in deferred taxes CAPEX+Net WC increase 2 2.00 2.20 2.90 2.60 2.50 50 40.00 45.00 33.00 35.00 32.00 Corporate tax rate: 40% The buyer can finance the acquisition with 50% debt that can be raised at 7%. The beta of companies in ABC's industry with similar capital structures is 1.5. The yield on 10-year Treasury notes is 4%, the equity risk premium is about 6%. After 2012, FCFs are expected to grow at 3% Estimate the free cash flows of ABC Company for the 5 years 2008 to 2012 and compute the enterprise value as of year-end 2007. Problem 1. ABC company has put together the following projection: 2008 Actual 2007 2,100 1.50% 29 2,000 2.00% 32.60 Forecast 2009 2,200 2.00% 34.20 2010 2,300 3.00% 32.90 2011 2,500 4.00% 32.00 2012 2,600 4.00% 31.50 Sales EBITDA margin Depreciation Increase in deferred taxes CAPEX+Net WC increase 2 2.00 2.20 2.90 2.60 2.50 50 40.00 45.00 33.00 35.00 32.00 Corporate tax rate: 40% The buyer can finance the acquisition with 50% debt that can be raised at 7%. The beta of companies in ABC's industry with similar capital structures is 1.5. The yield on 10-year Treasury notes is 4%, the equity risk premium is about 6%. After 2012, FCFs are expected to grow at 3% Estimate the free cash flows of ABC Company for the 5 years 2008 to 2012 and compute the enterprise value as of year-end 2007