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

This preview shows page 1 out of 1 page.

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

#### You've reached the end of your free preview.

Want to read the whole page?

• Fall '14
• Levine
• Earnings before interest and taxes, Value theory, FCFF, INVESTed CAPITAL