BV 13-2 - 13-2 BV You decide to value a steady-stare...

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Unformatted text preview: 13-2 BV You decide to value a steady-stare company using probability-weighted scenario analysis. In Scenario 1, NOPLAT is expected to grow at 6 percent and ROIC equals 16% . In Scenario 2, NOPLAT is expected to grow at 2% and ROIC equals 8%. Next year's NOPLAT is expected to equal $100 million and the weighted average cost of capital is 10%. Using the key value driver formula, what is the enterprise value in each scenario? For each scenario is equally likely, what is the enterprise value for the company? Solution: Scenario 1: NOPLAT for the next year (T+1) = $100 mn g = 6% ROIC = 16% WACC = 10% Enterprise Value (Continuing value) using Value Driver approach: NOPLATt +1 (1 - g / ROIC ) WACC - g In our case, the enterprise value would be = 100*(1-6%/16%) / (10%-6%) EV = $1562.5 mn Scenario 2: NOPLAT for the next year (T+1) = $100 mn g = 2% ROIC = 8% WACC = 10% Enterprise Value (Continuing value) using Value Driver approach: NOPLATt +1 (1 - g / ROIC ) WACC - g In our case, the enterprise value would be = 100*(1-2%/8%) / (10%-2%) EV = $937.5 mn Enterprise value for the company1: Probabilities of each scenario = 50% for Scenario 1 & 50% for Scenario2 So, the enterprise value for the company would be: 1562.5*0.5 + 937.5*0.5 = $1250 mn ...
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BV 13-2 - 13-2 BV You decide to value a steady-stare...

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