Use Tables 3 and 4 to forecast free cash flow for Reeby Sports from 2004 to 2010. What is the present value of these cash flows in 2003‚ including PV(terminal value) in 2010? Free Cash Flow 2004 2005 2006 2007 2008 2009 2010 2011 Terminal = After-tax profits 5‚25 5‚70 3‚00 3‚40 4‚35 6‚00 7‚61 7‚60 + Depreciation 2‚40 3‚10 3‚12 3‚17 3‚26 3‚44 3‚68 3‚94 - CapEx 4‚26 10‚50 3‚34 3‚65 4‚18 5‚37 6‚28 8‚50 - Inc. In NWC 1‚39 0‚60 0‚28 0‚42 0‚93 1‚57 2‚00 FCF 2‚00 -2‚30 2‚50 2‚50 2‚50 2‚50 3‚01
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The keys to the company’s future value and growth are profitability (ROE) and the reinvestment of retained earnings. Retained earnings are determined by dividend payout. The spreadsheet sets ROE at 15% for the five years from 2006 to 2010. If Reeby Sports will lose its competitive edge by 2011‚ then it cannot continue earning more than its 10% cost of capital. Therefore ROE is reduced to 10% starting in 2011. The payout ratio is set at .30 from 2006 onwards. Notice that the long-term growth
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10%: PV???ℎ ???? = 8.01 Then we calculated the horizon value of 2020‚ of which there are two types of calculation: (a) Suppose Reeby Sports will lose in the market competition and has no PVGO‚ then its 2020 horizon value will equal to: PVH = 7.60 = 76.00 0.10 In this way‚ the present value of 2013 will be: PV2013 = 8.01 + 76.00 = 47.00 (1 + 0.10)7 (b) Suppose Reeby Sports will still win in its market competition in 2020‚ then its 2020 horizon value will equal to its free cash flow of 2021 over
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REEBY SPORTS Principles of Corporate Finance 7th Edition Richard A. Brealey and Stewart C. Myers George Reeby proposes to sell 90‚000 shares‚ or about 22%‚ of his company. How much are those shares worth? We have to value the company using George’s forecasts. The forecasts presented in Tables 4.10 and 4.11 do not show free cash flow and financing requirements. These are calculated in Table 1. Note that free cash flow for 2005 is -$2.3 million. But dividends are $2.0‚ so the
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The keys to the company’s future value and growth are profitability (ROE) and the reinvestment of retained earnings. Retained earnings are determined by dividend payout. The spreadsheet sets ROE at 15% for the five years from 2006 to 2010. If Reeby Sports will lose its competitive edge by 2011‚ then it cannot continue earning more than its 10% cost of capital. Therefore ROE is reduced to 10% starting in 2011. The payout ratio is set at .30 from 2006 onwards. Notice that the long-term growth rate
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1. The one time dividend will not affect the stock price. The value of the company will decline by the amount of the dividend. Ignoring taxes‚ shareholders wealth will not be affected because the stock price will drop by the amount of the dividend payment. 2. The value of the company could increase or decrease. If the company is overlevered‚ paying off debt can lower the interest rate on debt‚ and decrease financial distress costs. If there are no financial distress costs‚ capital structure
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The keys to the company’s future value and growth are profitability (ROE) and the reinvestment of retained earnings. Retained earnings are determined by dividend payout. The spreadsheet sets ROE at 15% for the five years from 2006 to 2010. If Reeby Sports will lose its competitive edge by 2011‚ then it cannot continue earning more than its 10% cost of capital. Therefore ROE is reduced to 10% starting in 2011. The payout ratio is set at .30 from 2006 onwards. Notice that the long-term growth
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