Question
Suppose you expect Company XYZ's sales to grow at a 9% rate in Year 1, but that this growth rate will slow by 1% per
Suppose you expect Company XYZ's sales to grow at a 9% rate in Year 1, but that this growth rate will slow by 1% per year to a long-run growth rate for the apparel industry of 5% by Year 5 based on Company XYZ's past profitability and investment needs, you expect its EBIT to be 9% of sales, increases in net working capital requirements to be 10% of any increase in sales, and net investment (capital expenditures in excess of depreciation) to be 8% of any increase in sales. Company XYZ has $1 million in cash, $100 million in debt, a tax rate of 37%, and a (after-tax) weighted average cost of capital of 11%.
- Estimate Company XYZ's FCF in Year 1, Year 2, Year 3, Year 4, and Year 5.
- Estimate the terminal value using the Perpetuity Growth Method with a growth rate of 5%.
- Estimate the current enterprise value of Company XYZ.
- Estimate the current equity value of Company XYZ. If there are any missing information, please name them.
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