Compute the Adjusted Present Value.
The buyer wants cash flows evaluated for 20 years and assumes a terminal value a
$50 M to be discounted at 15%. Ignore taxes.
Annual cash flow from product line expansion $ 7 M. Discount at 18%.
Annual cash flow from tax savings $ 7 M. The interest rate on debt is 6% and the tax
rate is 40%. You do not need to calculate a terminal value for tax savings.
Annual cas
At the end of 10 years, Grokster Investments plans to sell its interest in One City
Tower, an office building in Miami, FL. In year 10 the building is expected to generate
an annual cash flow of $75 million that is expected to grow at an annual rate 4%
forever. The discount rate for projects such as this is 12%. Calculate the terminal
value at the end of the 10th year.
FCF (forecast free cash flow at
end of explicit forecast period)
g (steady growth rate - the long
term growth)
Given the following data from Swamp & Sand Industries, calculate the NI.
The tax rate is 30%.
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400
SGA
313
Depreciation
119
5
NWC
15
CapEx
132
148
Dividends
20
tax rate
30%
Note SGA does not include depreciation
211 Revenue-Cost of Sales - SGA - Dep - Int Expense
63 -Taxes
148
X1
X2
100
145
Ignore cash
230
241
Inventories
450
483
Payables
300
323
Debt
140
252
Ignore debt
Remember a negative NWC is a source of cash and reduces the need for financing.
X1
X2
NWC = assets - liabilities
380
401
21
21
TV = (D*Kd*T)/(Kd-g)
Debt
$138.00
Cost of Debt
4%
Tax Rate
30%
3%
Terminal Value
166
Cost of Sales
Revenue -Cost of Revenue - SGA
- Depreciation - Interest Expense
- Taxes = Net Income
Interest Expense
Swamp & Sand Industries has the following data. Calculate its Net Working Capital
(NWC) adjustment for cash flow in year X2.
Cash
Receivables
Receivables +Inven
-Payables = NWC X2 -
Chg NWC
Calculate the terminal value of the tax shield given the following information.
Assume we are calculating it for the next year (that is, assume there is no planning
period, just a terminal value). The tax rate is 30%. Debt will be $138 million. Assume
debt grows at the same annual rate as the firm which is 3%. The cost of debt is 4%
while the cost of equity is 12%.
g (steady growth rate - the long
term growth)
Swamp & Sand Industries has the following data for the coming year. Free
cash flow, cash, and debt are constant. Terminal value is 3 times FCF.
The discount rate is 13%. Calculate its Enterprise Value.

133
118 FCF/1+R
Cash
29
353 FCF Terminal /1+R
Debt
280
471 118+353
Discount Rate
13%
471
Sales
1052
400
SGA
314
Depreciation
95
243
5
170.1
Change NWC
16
160.1
CapEx
89
Dividends
32
Note SGA does not include depreciation
FCF = EBIT * (1-T)
+ noncash expenses - (capital expenditures + change in net working capital)
EBIT (Operating Income)
338
95
T (tax rate - not the dollar amount of taxes)
30%
CAPEX
89
FCF = EBIT -Taxes +Dep -Chg NWC
Change in Net Working Capital
16
160
FCF
Free Cash Flow
Enterprise Value is the
discounted value of FCF and
Terminal Value. In this case since
it is only one year. FCF*(1+3)/
(1+DR)
Given the following data from Swamp & Sand Industries, calculate the FCF
(Free Cash Flow). The tax rate is 30%.