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
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
- 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
+ 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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