Case Cartwright Lumber Company, continued from Wk2 Learning Objectives 1 Review calculation of cost of capital (k-wacc). SEE THE FLOW DIAGRAM TA 2 Understand the foibles of equity valuation. 3 Appreciate that the capital budgeting analysis you did in Week 4 ‘values’ one project standing alone - the LATC hospital project. The valuation analysis this week values the whole business - all the projects – using similar methodology based on free cash flow. 4 Realize that market price is not the same as intrinsic value. Reading Cohen Finance Workbook chapter 6: 1 Cost of Capital material starts on p 70 - already assigned. 2 Cost of Capital Template explained on p 75 - already assigned, should be familiar by no 3 Read chapter 6 on equity valuation 4 Pps 99-102 explain how to use FCF Equity Valuation template 5 Pps 102-105 explain how to use Market Multiples template Questions See Q1 and Q2 Tabs for the questions. Scroll down to see the questions. Recall what you learned about CAPM in 6233 Wk3. Group work is encouraged…but…when you write your answers in this template, the Doing otherwise violates academic integrity rules. THERE IS NO SINGLE CORRECT ANSWER TO THIS CASE. THE PURPOSE OF THE ASSIGNMENT IS TO LEARN THE PROCESS OF FINANCIAL STATEMENT ANALYSIS AND FORECASTING. PERFECTION IS NOT EXPECTED. THIS IS WORK-IN-PROCESS; NOT FINISHED PRODUCT…I.E., A LEARNING EXPERIENCE. BUT, YOU MUST MAKE A CLEAR RECOMMENDATION BASED ON THE RESULTS OF YOUR ANALYSIS. Solutions for Wks 1 & 2 are included on separate tabs if you want to review them.
AB- YOU ARE NOW WORKING ON THE BLUE-COLORED ANALYSIS ow work must be your own independent work.
INCOME STATEMENT BALANCE SHEET WORKING CAPITAL Revenue ASSETS LIABILITIES AND EQUITY spontaneous change with revenue Cost of sales Current assets Current liabilities ?what levels of ca, cl, s-t loans? Gross profit Cash Trade payables CAPITAL BUDGETING Other operating income Investments Other accruals ?what projects to accept? Other operating expenses Trade receivables Tax liabilities FINANCING Total cost and expenses Inventories Short-term loans, leases ?what is the debt capacity? Operating profit (EBIT) Non-current assets Non-current liabilities Interest, finance costs Property, plant & equipment Loans, debt, leases due after 1 year Profit before tax Investment property Retirement benefit obligation COST OF DEBT Income tax Goodwill Deferred tax liabilities Net profit after tax Total non-current liabilities Dividends K-WACC Reinvested in the business Stockholder's equity (Net worth) Preferred stock OPERATING LEVERAGE Common stock COST OF EQUITY Additional paid-in-capital FINANCIAL LEVERAGE Retained earnings VALUATION CASH FLOW Total assets Total liabilities & equity COST OF CAPITAL
ANALYSIS STEPS: FINANCING 1-HISTORICAL RATIOS 2-K-WACC HISTORICAL RATIOS I/S & B/S FORECAST EFN 3-CAPITAL BUDGETING LONG-FORM FORECAST I/S, B/S, & RATIOS 5-EQUITY VALUATION 6-FINANCING CAPITAL BUDGETING OP & CAP NATCF, NPV, IRR, PAYBACK VALUATION ENTERPRISE VALUE USING FREE CASH FLOW MARKET MULTIPLES: P/E, MV/BV, REV, EBIT 4-FORECAST & EFN
DEBT EQUITY DEBT EQUITY EBIT CHART income risk control mktblty flexblty timing K-WACC
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