Week 7
A. 1. Net Operating Profit after Taxes (Operating Income x (1-Tax Rate) NOPAT for 2011 = 108.6 (1-.40) =$65.16 2. Net Operating Working Capital for 2011 is calculated through Taking your Current Assets less – Non-Interest Bearing Current Liabilities NOWC for 2011 = ($5.6 + $56.2 + $112.4) – ($11.2 + $28.1) = $134.9 million.
3. Net Capital for 2011 is calculated the sum of NOWC (already shown as) 134.9 million + Net Fixed Assets (2011 Projected PP&E) of 397.5 = Net Capital for 2011 of = $134.9 + $397.5 = $532.4 million. 4. Free Cash Flow for 2011 is obtained through NOPAT less – Investment in Capital = $65.16 – ($532.4 - $502.2) = $65.16 - $30.2 = $34.96 million is the Free Cash Flow as of 12/31/2011. B. Page 547 of the text states that terminal, or horizon, value is the value of operations at the end of the explicit forecast period. It is also called the continuing value, and it is equal to the present value of all free cash flows beyond the forecast period, discounted back to the end of the forecast period at the weighted average cost of capital. HV is = to Free Cash Flow for 2011 = 34.96 * Growth Rate of 6% / Weighted Average Cost of Capital 11% less – the growth rate of 6%.
HV for 2011 = [$34.96(1.06)]/ (0.11-0.06) = $741.152 million is the Horizon Value on 12/31/2011.
C. Value of operations is the present value of all the future free cash flows expected from operations when discounted at the weighted average cost of capital, and is expressed as: Value of Operations is the FCF plus HV / by the WACC shown below VOp at 12/31/2010 = [$34.96 + $741.152]/ (1+0.11) = $699.20 million is the value of operations on 12/31/2010. D. Corporate valuation model can be used to calculate the total value of a company by finding the value of operations plus the value of non-operating assets (in this case Marketable Securities).
Total corporate value = $699.20(value of operations) + $49.9(marketable securities) = $749.10 million is the value of the company on
3. Net Capital for 2011 is calculated the sum of NOWC (already shown as) 134.9 million + Net Fixed Assets (2011 Projected PP&E) of 397.5 = Net Capital for 2011 of = $134.9 + $397.5 = $532.4 million. 4. Free Cash Flow for 2011 is obtained through NOPAT less – Investment in Capital = $65.16 – ($532.4 - $502.2) = $65.16 - $30.2 = $34.96 million is the Free Cash Flow as of 12/31/2011. B. Page 547 of the text states that terminal, or horizon, value is the value of operations at the end of the explicit forecast period. It is also called the continuing value, and it is equal to the present value of all free cash flows beyond the forecast period, discounted back to the end of the forecast period at the weighted average cost of capital. HV is = to Free Cash Flow for 2011 = 34.96 * Growth Rate of 6% / Weighted Average Cost of Capital 11% less – the growth rate of 6%.
HV for 2011 = [$34.96(1.06)]/ (0.11-0.06) = $741.152 million is the Horizon Value on 12/31/2011.
C. Value of operations is the present value of all the future free cash flows expected from operations when discounted at the weighted average cost of capital, and is expressed as: Value of Operations is the FCF plus HV / by the WACC shown below VOp at 12/31/2010 = [$34.96 + $741.152]/ (1+0.11) = $699.20 million is the value of operations on 12/31/2010. D. Corporate valuation model can be used to calculate the total value of a company by finding the value of operations plus the value of non-operating assets (in this case Marketable Securities).
Total corporate value = $699.20(value of operations) + $49.9(marketable securities) = $749.10 million is the value of the company on