Taxes 174 3533 EBIT 1 t 3060 1040 2122 5238 5300 Reinvestment 1000 1020 1040

Taxes 174 3533 ebit 1 t 3060 1040 2122 5238 5300

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Taxes 0 0 0 $1.74 $35.33 EBIT (1-t) ($30.60) ($10.40) $21.22 $52.38 $53.00 Reinvestment $10.00 $10.20 $10.40 $10.61 $10.82 FCFF ($40.60) ($20.60) $10.82 $41.77 $42.17 NOL at end of year ($60.60) ($71.00) ($49.78) $4.34 $92.67 Problem 2 Let the intrinsic value of the operating assets be X Value of Operating assets X 1. Value of the operating ass + Cash 100 2. Did not compute reinvest Value of firm 1300 3. Other errors: -0.5 point ea - Debt 300 Value of equity 1000 - Value of options 100 Value of shares traded 900 Solving for X Value of operating assets 1200 1200 = After-tax OI (1- 2%/20%) / (.10-.02) Solving for After-tax OI $106.67 ! Full credit if you put (1+g) in here and solved Problem 3 Approach 1: Value June parent and add 60% of value of Vellum Juno (consoli Vellum Juno (Parent) Operating income (after-tax) $110  $20  $90 1. Computed ROC using boo Book Equity $1,000  $100  $900 2. Did not compute reinvest Debt $225  $50  $175 3. Mixed up add/subtract mi Cash $100  $25  $75 4. Did not compute equity v 5. Other errors: -0.5 point ea
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Invested Capital $125 $1,000 Return on capital 16.00% 9.00% ! Full credit even if you did not net out cash Expected growth rate 2.00% 2.00% Reinvestment Rate 12.50% 22.22% Cost of capital 10.00% 10.00% Value of business 218.75 875  + Cash $25 $75  - Debt $50 $175 Value of equity $194 $775 Value of equity in Juno = 775 + 0.6 (194) = $891.25 Value of equity per share = $8.91 Approach 2: Value June consolidated and subtract out 40% of equity value in Vellum (minority interests) Juno (consoli Vellum Operating income (after-tax) $110  $20  Book Equity $1,000  $100  Debt $225  $50  Cash $100  $25  Invested Capital $1,125 $125 Return on capital 9.78% 16.00% Expected growth rate 2.00% 2.00% Reinvestment Rate 20.45% 12.50% Cost of capital 10.00% 10.00% Value of business 1093.75 218.75  + Cash $100 $25
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 - Debt $225 $50 Value of equity $969 $194 Value of equity in Juno = 969 - 0.4 (194) = $891.25 Value of equity per share = $8.91 Spring 2013 Problem 1 Grading template 1 2 3 4 5 1. Wrong return on capital in Revenues $500 $750 $1,000 $1,200 $1,250 2. Did not discount back to p Operating Income after taxes $10 $23 $35 $40 $50 3. Other math errors: -1/2 po Reinvestment $30 $25 $25 $20 $20 FCFF -$20 -$3 $10 $20 $30 Cost of capital 12% 11% 10% 9% 8% Invested capital $410 $435 $460 $480 $500 Return on capital 2.44% 5.17% 7.61% 8.33% 10.00% Reinvestment rate = 30.0% Terminal value = $721.00 Discount factor for year 5 1.60984454 ! (1.12)(1.11)(1.10)(1.09)(1.08) Present value of terminal value $447.87 Problem 2 Limca (Parent LightEat Value of the operating assets $1,500.00 $600.00 1. Did not value Limca corre Debt $500.00 $300.00 2. Did not reflect value of Lig Cash $200.00 $100.00 3. Math errors: -1/2 point Number of shares 100.00 50.00 Value of equity (independent) $1,200.00 $400.00 Value of equity with cross holdings $1,500.00 Value of equity per share = $15.00 Problem 3 Market value of equity = 600 1. Did not compute reinvest
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+ Debt 250 2. Used wrong value of oper - Cash 100 3. Math errors: -1/2 point Value of operating assets 750 Cost of capital 9% Growth rate 3% Reinvestment rate = 33.33% 750 = AT Op Inc (1- .33)/ (.09-.03) After-tax operating income $67.50 After-tax operating margin 6.75% ! If you use (1+g), answer = 6.55% Problem 4 Value with existing management = $250.00 Return on capital (existing) = 5.00% 1. Error on status quo valuat Return on capital (new) = 10% 2. Error on optimal valuation New reinvestment rate = 20.0% 3. Did not compute return o Value with new management = $333.33 4. Math error: -1/2 point Expected value = $283.33 Fall 2013 Problem 1 Grading Guideline Current Revenues = $10.00
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