Valuation Assignment F2017.pdf

Valuation Assignment F2017.pdf - Valuation Exercise...

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Valuation Exercise / Practice Problems Individual write-ups are due. FOR THIS ASSIGNMENT ONLY, YOU MAY CHOOSE TO TURN IN A PRINT COPY (BY THE START OF OUR SCHEDULED CLASS TIME) RATHER THAN POSTING TO CANVAS. Exhibits for #1 (valuation case) are also posted in excel on Canvas. PROBLEM #1, Mini Case, Siena Farms. Please answer based on the description following. Exhibits should contain sufficient notations to explain your calculations 1. What is the value of the project assuming the firm was entirely equity financed? What are the annual projected free cash flows? What discount rate is appropriate? 2. Value the project using the Adjusted Present Value (APV) approach assuming the firm raises $750 thousand of debt to fund the project and keeps the level of debt constant in perpetuity. 3. Value the project using the Weighted Average Cost of Capital (WACC) approach assuming the firm maintains a constant 25% debt-to-market value ratio in perpetuity. 4. What are the end-of-year debt balances implied by the 25% target debt-to-value ratio? (hint: each year, the debt outstanding will equal 25% of the value you calculate for the value as of that year, i.e. the PV of FCFs beyond that year) 5. Using the debt balances from question 4, use the Capital Cash Flow (CCF) approach to value the project. 6. How do the values from the APV, WACC, and CCF approaches compare? Why?
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Mini case Siena Farms, Inc. Sienna Farms (SF) is a local producer and distributor of organic products to local Boston area restaurants and stores, and also sells directly to customers at 3 Boston store locations. Unlike larger rivals, it has no ambitions to grow (pun intended) outside the local area.
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