The founders of the 5-year old start up Sugar Tea decide to exit their investment. Given recent M&A deals and current market conditions they decide to sell the company to PepsiCo. To prepare the negotiation talks they hire you as a consultant to perform a discounted cash-flow (DCF) company valuation You open your Excel spreadsheet and plug in detailed data on revenues and cost structure for the next five years. At the end of the working day you obtain the following operating cash flows (OCFs) in million euros 4 Year OCF 1 +40 2 +45 3 +50 5 +58 +54 The above OCF estimates include investments in working capital (accounts receivables, inventories and accounts payable). The most recent balance sheet is lying on your desk Liabilities and equity (in mln euro) Bank credit 100 (current rate = 5%) Accounts payable 133 Current liabilities 233 Bonds 250 (yield to maturity = 5%) Total liabilities 483 Activate W Total liabilities 483 Equity Total liabilities & equity 583 100 The company's marginal tax rate is 35% and its cost of capital equals 7%. The company is expected to operate indefinitely into the future. At this moment the market has a flat interest rate structure of 5% Question a. You are doing a DCF company valuation exercise What is the present value of the OCFs from year 6 onwards if you assume OCFs to decrease 1.16% per year after year 5? BIU , *EEEE. Text Word count: 0, character count. O Question b: You are doing a DCF company valuation exercise What is the total entity value of this company? BIUXXE =T. I 2 > Text Question : You are doing a DCF company valuation exercise What is the equity value of this company? BIUX, * = = . Text Ix 2 > 2 The founders of the 5-year old start up Sugar Tea decide to exit their investment. Given recent M&A deals and current market conditions they decide to sell the company to PepsiCo. To prepare the negotiation talks they hire you as a consultant to perform a discounted cash-flow (DCF) company valuation You open your Excel spreadsheet and plug in detailed data on revenues and cost structure for the next five years. At the end of the working day you obtain the following operating cash flows (OCFs) in million euros 4 Year OCF 1 +40 2 +45 3 +50 5 +58 +54 The above OCF estimates include investments in working capital (accounts receivables, inventories and accounts payable). The most recent balance sheet is lying on your desk Liabilities and equity (in mln euro) Bank credit 100 (current rate = 5%) Accounts payable 133 Current liabilities 233 Bonds 250 (yield to maturity = 5%) Total liabilities 483 Activate W Total liabilities 483 Equity Total liabilities & equity 583 100 The company's marginal tax rate is 35% and its cost of capital equals 7%. The company is expected to operate indefinitely into the future. At this moment the market has a flat interest rate structure of 5% Question a. You are doing a DCF company valuation exercise What is the present value of the OCFs from year 6 onwards if you assume OCFs to decrease 1.16% per year after year 5? BIU , *EEEE. Text Word count: 0, character count. O Question b: You are doing a DCF company valuation exercise What is the total entity value of this company? BIUXXE =T. I 2 > Text Question : You are doing a DCF company valuation exercise What is the equity value of this company? BIUX, * = = . Text Ix 2 > 2
