Ysom, Inc. was founded recently by Professor Shin at Yonsei University and Professor Lee at Severance Hospital which is an affiliate institute of Yonsei University. The company manufactures sleep disorder diagnostic instruments. Yonsei Corp. is expecting rapid growth because of Korean population structure where the number of people over 65 years old increases sharply. The similar population structure and change are expected in China as well.

The company is equally owned by Prof. Shin and Prof. Lee. The original partnership agreement between the professors gave each of them 50,000 shares of stock. In the event either wished to sell stock, the shares first had to be offered to the other as a discounted price.

Although neither partner wants to sell, they have decided they should value their holdings in the company. To get started, they have estimated the information about the firm.

Ysom, Inc. is expected to have sales of $1 million dollars in 2017, $2 million dollars in 2018, $4 million dollars in 2019, $10 million dollars in 2020, and its growth rate will slow to a long-run growth rate for the health instrument industry of 4% by 2021. Based on Ysom, Inc.’s competitors’ profitability and investment needs, you expect EBIT to be 30% of sales, increases in net working capital requirements to 10% of any increase in sales, and net investment to be 15% of any increase in sales. Its tax is exempt for first 4 years because it is a startup but it will be 40% after 4 years. The weighted average cost of capital is high because it is a startup. It is very common that the required rate of return for a startup is over 30%. Let’s assume that investors require 50% return on investment for similar startups, but the required return is assumed to be 15% after year 4. The company does not have any debt and the outstanding number of shares is 100,000.

What is the value per share of the company’s stock? What is the value of Professor Shin’s Ownership?

Estimate EBIT which is 30% of sales each year.

Estimate Income tax.

Estimate Net Investment each year

Estimate Increase/Decrease in Net Working Capital (NWC) each year

Estimate Free Cash Flow each year using the method

Calculate Terminal value as of 2020

Calculate Total Free Cash Flow in 2020 which is the sum of free cash flow each year and terminal value in the last year of estimation period

Calculate Present Value of Total Free Cash Flow (C17 in excel template) using the discount rate of 50%

What is Enterprise Value

What is the value per share of the company’s stock

What is the value of Professor Shin’s Ownership for millions unit?