Chapter_10_Solutions_ABP_Revision_march 28 1030 pm

Chapter_10_Solutions_ABP_Revision_march 28 1030 pm -...

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Valuation Measuring and Managing the Value of Companies 5th Edition Chapter 10 Solutions Estimating Continuing Value Version 1.0 April 1, 2010 Revised by Annette Poulsen march 28 2011
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Chapter 10 Question 1 Continuing Today Year 1 Year 2 Year 3 Year 4 Year 5 value Revenues 250.0 265.0 280.9 297.8 315.6 334.6 354.6 Operating costs (225.0) (238.5) (252.8) (268.0) (284.1) (301.1) (319.2) Operating margin 25.0 26.5 28.1 29.8 31.6 33.5 35.5 Operating taxes (6.6) (7.0) (7.4) (7.9) (8.4) (8.9) NOPLAT 19.9 21.1 22.3 23.7 25.1 26.6 Net investment (8.0) (8.4) (8.9) (9.5) (10.0) CV Free cash flow 11.9 12.6 13.4 14.2 15.1 399.0 Discounted cash flow Discount rate 1.10 1.21 1.33 1.46 1.61 1.61 Discounted cash flow 10.8 10.4 10.1 9.7 9.3 247.7 Value of operations Percent $ million of total Discounted cash flow 50.4 16.9% Present value of CV 247.7 83.1% Value of operations 298.1 100.0% Note -- we had a question in class about the use of NOPLAT in t=6 in the Continuing value formula. ThIS IS CORRECT!! You do use the NOPLAT in t=6 for this calculation. Recall: (see p. 40 and 41) Value at t=0 = FCF at t+1 / (WACC - g) FCF at t+1 = NOPLAT at t+1 - Net Investment =NOPLAT - (NOPLAT * investment rate) =NOPLAT (1 - IR) g = ROIC * IR ---> IR = g/ROIC =NOPLAT (1 - g/roic) So -- note that FCF is at t+1 and NOPLAT is at t+1
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when find the value for t=0. This problem is done correctly!
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Continuing value NOPLAT 26.6 Growth 6.0% Return on new capital 15.0% Cost of capital 10.0% Key value driver formula 399.0
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p Question 2 Continuing Today Year 1 Year 2 value Continuing value Revenues 250.0 265.0 280.9 297.8 NOPLAT 22.3 Operating costs (225.0) (238.5) (252.8) (268.0) Growth 6.0% Operating margin 25.0 26.5 28.1 29.8 Return on new capital 15.0% Cost of capital 10.0% Operating taxes (6.6) (7.0) (7.4) NOPLAT 19.9 21.1 22.3 Key value driver formula 335.0 Net investment (8.0) (8.4) CV Free cash flow 11.9 12.6
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Chapter_10_Solutions_ABP_Revision_march 28 1030 pm -...

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