! Used cash flow in year 3 to growt at 4%: -1 poic. & d.! Did not use 10% as discount rate: -0.5 pointFCFF$108.00$116.64$4,492.97Cost of capital12%11%10%Cumulated WACC1.121.24321.36752! Discount at cumulated WACCPresent value$96.43$93.82$3,285.49Value of firm$3,475.74+ Cash400- Debt1000I also gave full credit if you used the treasury stock approach.- Minority interest500! 250 * 2Add exercise value of $ 400 million (20*20 to numerator) Value of equity$2,375.74and divide by 100 million sharesValue of options200Value of equity in common stock$2,175.74Value per shaer$27.20
Net effect on value =-$50.00! Sold for less than these stores are worthEffect on value/share =-$0.63! Value per share will decreaseFall 2009Problem 1123Terminal yearEBIT-$100.00$100.00$150.00154.5! Ignored NOL: -1 pointTaxes$0.00$0.00$40.0061.8! Failed to accumulate losses: -0.5 pointsEBIT (1-t)-$100.00$100.00$110.0092.7! Did not compute FCFF: -1 pointReinvestment$100.00$150.00$50.0023.175FCFF-$200.00-$50.00$60.0069.525Terminal value$993.21Cumulated Cost of capital1.15001.28801.4168! Did not cumulate discount rates: -1 pointPV-$173.91-$38.82$743.38NOL$150.00$50.00$0.00Capital invested$572.50$722.50$772.50! Did not compute ROC in year 3: -1 point! Errors on reinvestment rate: -1 pointReturn on capital in terminal year =12.00%! Errors on terminal value computation: -0.5 to -1 pointReinvestment in terminal year =25.00%Value of operating assets =$530.64+ Cash $80.00! Did not add cash: -1 point+ Value of cross holding $100.0040*2.5! Did not compute minority holding value: -1 point- Expected lawsuit liability$25.00! .25*100! Did not subtract out lawsuit liability: -1 pointValue of equity$685.64Value of equity =$685.64! Any mistake: -1 point+ Exercise proceeds$60.00/ Number of diluted shares110Value per share today =$6.78Fall 2010Year 1Year 2Year 3Revenues$150$160$180EBIT (1-t)-$15$15$25
+ Depreciation$15$20$25- Cap EX$5$25$40FCFF-$5$10$10Grading notesCost of capital14%12%10%a. PV of cash flows for first 3 years =Cumulated Cost of capital1.14001.27681.4045! Discount at ! Did not cumulate: -1 pointCash Flow-$5$10$10! In year 3: 1Math errors: -0.5 point eachPresent Value-$4.39$7.83$7.12Total$10.57b. Return on capital investedEBIT (1-t)-$15$15$25! Capital inve! All or nothing…. SorryCapital invested: end of year$180$185$200Capital invested in year n + (Cap ex - Depreciation)ROC-8.33%8.11%12.50%g/ROC will not work, since ROC is changingc. Terminal valueReturn on capital =12.50%! Did not compute reinvestment rate: -1 pointExpected growth rate =3%! Math errors: -0.5 point eachReinvestment Rate =20.0%Terminal Value273.333333! 25*1.025* (1-0.2)/(.10-.025)c. PV of terminal value =194.615326! Discount back at cumulated cost! Used book value of debt: -0.5 pointSum of FCFF next 3 years$10.57! Did not discount terminal value: -0.5 pointValue of opeating assets =$205.18+ Cash 25- Debt75! Cannot use book value ina DCF valuationValue of equity =$155.18Value per share=$7.76Problem 2FCFE value of equity! Did not compute FCFE value = - 1 pointFCFE =120! Already next year's number! Did not set up probability of nationalization: -1 pointCost of equity =10%! Other math errors: -0.5 point each