Midterm2_PracticeQuestions

Midterm2_PracticeQuestions - FBE 421 SPRING 2011 MIDTERM#2...

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FBE 421: S PRING 2011 M IDTERM #2 P RACTICE P ROBLEMS Question 1: You are an analyst working on the valuation of Goggle Corporation. You have just gathered the following information on the company. Note: We are at the end of Year 0. Projections ($ Millions) Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 EBITDA 3,665 5,304 6,876 8,622 10,348 11,753 DA 524 681 818 957 1,091 1,211 ΔNOWC 142 185 215 259 271 235 CAPEX 949 1,421 2,347 1,592 1,058 3,249 Total Debt 2,199 14,488 12,864 11,437 9,843 8,352 Pre-existing Debt 2,199 1,759 1,408 1,126 563 0 New Debt 0 12,729 11,456 10,311 9,279 8,352 Pre-existing Debt/ Total Debt 1.00 0.12 0.11 0.10 0.06 0.00 Interest Expenses 330 2,173 1,930 1,715 1,476 1,253 Additional Information Initial Cash 1,500 Initial Value of Non-operating Assets 5,235 Tax rate 34% Cost of debt 6% Historical equity beta 1.0 Historical debt/value ratio 0.2 Target debt/value ratio 0.4 Market Risk Premium 5.5% 10-year treasury rate 6.0%
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(a) You plan to estimate the enterprise value using the APV approach. You and a fellow analyst discuss the following identity: E D A V E V D E D E D D E A 1 (1) Compute the present value of the Terminal Value using equation (1) and an EBITDA multiple of 6x. Assume that β D =0. (b)
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This note was uploaded on 04/20/2011 for the course FBE 459 taught by Professor Matos during the Spring '08 term at USC.

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Midterm2_PracticeQuestions - FBE 421 SPRING 2011 MIDTERM#2...

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