V1 A8 Q1 Q5

Please show all workings and/or give explanations

Note: Questions 1 - 10 relate to the same "mega" problem. For convenience we have included the entire set of information in every question. For purposes of the questions that follow, assume that changes in working capital are negligible and capex and depreciation are of the same magnitude and therefore cancel each other. This is the assumption we made in most of the videos to focus on valuation effects of borrowing and taxes and to figure out the key differences between alternative valuation methods.

You are an MBA seeking a position with JP Morgan and you have reached the final round of the gruelling interview process. The head of the M&A division of JP Morgan, Jane Doe, has been very impressed by your credentials and challenges you to value a company, Anonymous, Inc., that is ready to go for an IPO (an Initial Public Offering). You are given two hours to conduct the analysis and provided access to all available information required to conduct your analysis. The forecasted earnings of Anonymous, Inc. (or EBIT) are $3,000,000 per year for the foreseeable future. You spend thirty minutes on due diligence of all comparable grms in the same industry and estimate that the beta asset in the business of Anonymous, Inc. is 2.50. The risk free rate is 2.00% and the expected market risk premium (the premium that the market is expected to earn over the risk free rate) is 4.00%. The pro forma balance sheet of Anonymous, Inc. shows that it has $5,000,000 of debt that it plans to maintain for the foreseeable future and the interest on the debt is 5%. The corporate tax rate is 35%, interest payments on debt are tax deductible and it is reasonable to assume that the riskiness of the tax shield is the same as the debt. You also estimate that the chances that Anonymous, Inc. will go into bankruptcy in the future are negligible.

Q	Question	Method	Choose an answer
1	From above question, Given that the above information takes you more than 100 minutes to gather, you choose to use the Adjusted Present Value (APV) method to value the company and your estimate of the value is (Enter the nearest rounded dollar number without any $ or comma sign):	Adjusted Present Value
2	Jane is very impressed by your valuation analysis, including your final estimate. She confesses that it is very similar to estimates provided by her lead analysts. Having done her MBA several years ago, Jane however is not aware of the APV method and therefore requests you to redo the analysis using the Enterprise Value Method, which uses WACC as the discount rate. She requests you to use the information at your disposal, including your analysis using the APV method. She gives you thirty minutes to do the entire analysis. Recognizing the complicated nature of calculating WACC, you focus on it and calculate it to be: (Enter in percentage form with no more than two decimals in the number but without % sign):	Enterprise Value Method
3	Using the WACC calculated above, and all the information about Anonymous, Inc. at your disposal, you now feel confident you can use the Enterprise Value method to calculate the value of the company. Your estimate of the value of Anonymous, Inc. using this method turns out to be (Enter the nearest rounded dollar number without any $ or comma sign):	Enterprise Value Method
4	Impressed by your valuation skills, Jane offers you a position at JP Morgan and invites you to meet with the owners of Anonymous, Inc., the next morning. She requests you to share some more analysis and estimates with them. She specifically requests that you estimate the value of equity of the firm and share all the information that you generate through the analysis: cash flow to equity, beta of equity, the return on equity and price per share. You are keen on showing your dexterity with all valuation methods and spend some time to come up with the detailed analysis requested by your future boss. Your estimate of the total annual cash flow to all equity holders comes to:	All methods (APV, Enterprise Value, Equity Valuation	a) $1,787,500 b) $2,125,000 c) $1,700,000 d) $1,825,500
5	Your estimate of the beta equity of Anonymous, Inc. is (Enter a number with up to two decimals):