using financial statement models for valuation mgt 4850 spring 2008 university of lethbridge
Post on 21-Dec-2015
215 Views
Preview:
TRANSCRIPT
Corporate Valuation
• Building Pro forma model
• Calculating the relevant free cash flows
• Calculating the cost of capital for the free cash flows
• Determining the terminal value of the firm
• Properly discounting the free cash flows
• Sensitivity analysis
Farmers Bagels Inc.
• Balance sheets and Income Statements for 1995 and 1996 (p.90)
• Ratio analysis (p. 91)
• Sales predictions (2001)→ terminal value
Model Assumptions
• Drop the distinction between product sales and other income
• Cost of goods sold -40%
• Selling, general and administrative expenses (-1%/y)
• Income tax rate 41.5%
• Cash cushion-declining proportion of sales
• Accounts receivable – 22% of sales
Model Assumptions II
• Inventory 5% of sales• Property and equipment at cost 70% in ‘96 to
40% in 2001.• Straight line deprec. at 10% of prop. Cost• Accounts payable and accrued expenses +1%/y
till 20%• Income tax payable 25%• Other curr. liabilities 1% of sales• No dividends, no new equity (debt is the plug).
Negative Debt
• If total value of minimum cash balance plus all other assets is greater than current liabilities the company needs debt.
• [Cash ratio]*Sales+Acc. Rec. + Inventory + Prepaid exp. + Net property and equipm. – Curr. Liab. – Com. Stock – Ret. Earn. < 0
then debt is set at 0
p.94 pro forma model
top related