EV and FCFF notes - EV\/FCFF EXAMPLES 1 Derra Foods is a specialty food retailer In its balance sheet the firm reports $1 billion in book value of equity

EV and FCFF notes - EV/FCFF EXAMPLES 1 Derra Foods is a...

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EV/FCFF: EXAMPLES: 1. Derra Foods is a specialty food retailer. In its balance sheet, the firm reports $1 billion in book value of equity and no debt, but it has operating leases on all its stores. In the most recent year, the firm made $85 million in operating lease payments and its commitments to make lease payments for the next 5 years and beyond are: If the firm's current cost of borrowing is 7%, estimate the debt value of operating leases. Estimate the book value debt to equity ratio Year Operating Lease Exp Present Value at 7% 1 $90 million 84 2 $90 million 78.6 3 $85 million 69.38 4 $80 million 61.03 5 $80 million 57.04 6-10 $75 million annually 219 Sum of Present Values 569.43 The debt value of operating leases is $569.4313 million. Including this amount in debt, the book value debt to equity ratio becomes 569/1000 or 0.5694 Assume that Derra Foods, in problem 1, reported earnings before interest and taxes(with operating leases expensed) of $200 million. Estimate the adjusted operating income, assuming that operating leases are capitalized -
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  • Spring '11
  • RichardM.Levine
  • Debt, Valuation, Generally Accepted Accounting Principles, Earnings before interest and taxes, Zif Software

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