Post RD adjustment Expected growth rate 250 EBIT 1 t 8889 Current years RD RD

Post rd adjustment expected growth rate 250 ebit 1 t

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Post R&D adjustment Expected growth rate = 2.50% EBIT (1-t) - 88.89 + Current year's R&D - R&D amortization Reinvestmetn 8.89 + Current year's R&D - R&D amortization Corrected value of operating assets= 1066.666667 FCFF 80 Value increases by $66.67 million Fall 2012 Problem 1 Grading templage 1 2 3 4 5 Revenues (in millions) $1,020.00 $1,040.40 $1,061.21 $1,082.43 $1,104.08 1. Error on NOL carry forward: -1 point Pre-tax Operating margin -3.00% -1.00% 2.00% 5.00% 8.00% 2. Error on reinvestment number: -1 point EBIT ($30.60) ($10.40) $21.22  $54.12  $88.33  3. Other errors: -0.5 point each 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 assets wrong: -1 point  + Cash 100 2. Did not compute reinvestment rate: -1 point Value of firm 1300 3. Other errors: -0.5 point each  - 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 (conso Vellum Juno (Parent) Operating income (after-tax) $110 $20 $90  1. Computed ROC using book equity alone: -1 point Book Equity $1,000 $100 $900  2. Did not compute reinvestment rate: -1 point Debt $225 $50 $175  3. Mixed up add/subtract minority holding/interest: -1 point Cash $100 $25 $75  4. Did not compute equity value of sub: -0.5 point 5. Other errors: -0.5 point each 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 (conso 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 year 5 = -1 point Revenues $500 $750 $1,000 $1,200 $1,250 2. Did not discount back to present or used wrong discount factor: -1 point Operating Income after taxes $10 $23 $35 $40 $50 3. Other math errors: -1/2 point 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 1.609844544 ! (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 correctly: -1 point
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  • Fall '14
  • Levine
  • Earnings before interest and taxes, Value theory, FCFF, INVESTed CAPITAL

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