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Tutorial 05

The document provides financial information for two companies, Lanka Marbles and Moon Light, to value each company using the economic profit method. For Lanka Marbles, it provides historical and forecasted financials from 2014-2024 and estimates a value of Rs. 36.2 billion as of 2014. For Moon Light, it provides forecasted balance sheets from 2014-2023, estimated ROIC and WACC each year, forecasted 2023 income statement, and operating ratio estimates. It then requests calculations of invested capital each year, value created (economic profits) each year, enterprise value as of 2014, and equity value as of 2014.

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Lakmini
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82 views

Tutorial 05

The document provides financial information for two companies, Lanka Marbles and Moon Light, to value each company using the economic profit method. For Lanka Marbles, it provides historical and forecasted financials from 2014-2024 and estimates a value of Rs. 36.2 billion as of 2014. For Moon Light, it provides forecasted balance sheets from 2014-2023, estimated ROIC and WACC each year, forecasted 2023 income statement, and operating ratio estimates. It then requests calculations of invested capital each year, value created (economic profits) each year, enterprise value as of 2014, and equity value as of 2014.

Uploaded by

Lakmini
Copyright
© © All Rights Reserved
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Download as DOC, PDF, TXT or read online on Scribd
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Department of Finance

FIN 4321 - Business Valuation Theory and Application


Tutorial 05
Question 01
(1) USJ Business Valuation Company Ltd. Is in the process of determining the value of Lanka
Marbles Company, which is available for sale. Following estimates related to Lanka Marble have
been developed by the research division of USJ Business Valuation Company.
Year

Total Funds
Invested Rs.(M)

Total NonOperating
Assets Rs.
(M)

Total Non
Operating
Liabilities Rs.
(M)

ROIC
(%)

WACC
(%)

18,600

3,600

1,500

12

19,700
21,500
23,600
25,200
27,100
29,300
31,400
34,000
36,200
38,100

2,700
2,500
3,600
2,200
3,100
2,700
1,800
3,000
4,200
3,100

2,000
3,000
3,800
4,000
2,600
3,000
2,800
1,500
2,000
3,000

12
12
13
13
14
14
14
15
15
15

8
8
8
8
8
8
8
8
8
8

Historical
2014
Estimated
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024

In addition, the following information also provided for your consideration:


(I) The projected profit and loss account of Lanka Mabel as at 31/12/2024 is as follows:
(Rs. in million)
Revenue

12,500

Less: Operating Expenses

8,500

Operating Profit

4,000

Add: Non- Operating Income

500

EBIT

4,500

Less: Interest Expenses

1,500

Profit before Taxes

3,000

Less: Tax on Profits

1,200

Profit after Taxes

1,800

(II) The following information were also extracted from the Balance Sheet of Lanka Mabel as at
31/12/2014.
Long Term Loans
(Rs.millions) 6,000
Minority Interest
1,200
Pension fund
800
Restructuring Reserve
1,000
(III) The estimated growth rate and ROIC of Lanka Mabel for the future are 5% and 16%
respectively.
(IV) Mid-year adjustment factor is estimated to 1.02

(V) Lanka Mabel is expecting to receive 10% more than its equity value as the purchase
consideration.

With the above given information you are required to calculate:


a) The value of Lanka Mabel company as at 31/12/2014 (Using Economic Profit Method)
b) The equity value of Lanka Mabel company as at 31/12/2014
c) The minimum purchase consideration acceptable to Lanka Mabel Company.
Question 02
Business Valuation Consultant Company seeks your assistance in estimating the value of Moon
Light Pvt Ltd. The following forecasted Balance Sheets of Moon Light Company have been
developed by Business Valuation Consultant Company for this purpose:
Balance Sheet as at 31/12/-- (In Rs.000')
Historical
2014
Assets
Property & Equip
Motor Vehicles
Long Term
Investments
Inventories
Trade Debtors
Bills Receivables
Short-term
Investments
Cash & Cash
Equivalents
Equity &
Liabilities

2015

2016

2017

Forecasted
2018
2019
2020

13,200
600

15,100
560

18,400
720

21,000
810

23,000
900

25,800
840

27,200
810

31,000
880

33,200
950

32,100

100

120

180

70

150

200

230

300

350

260

7,100
400
100

7,400
350
120

9,100
620
180

9,800
700
100

10,200
650
130

10,500
800
90

11,000
750
300

11,200
700
180

11,400
820
200

12,100

70

100

80

50

70

100

60

120

100

150

2,300

1,800

2,300

1,600

2,100

2,000

1,800

1,650

1,200

1,750

23,870

25,550

31,580

34,130

37,200

40,330

42,150

46,030

48,220

48,280

2021

2022

2023

900

900
120

Paid up Share
Capital
Reserves
Debentures
Other Long-term
Liabilities
Trade Creditors
Bills Payable
Accrued
Expenses & other
current Liabilities
Notes
Excess Cash
(Included in cash
balance)

8,100

8,100

10,000

10,800

11,500

12,000

12,750

13,500

14,000

15,100

9,000
1,200

9,200
1,000

9,800
2,800

10,000
3,000

9,600
4,500

11,800
3,300

13,700
4,000

15,600
4,500

16,200
5,500

18,200

800

1,200

2,100

2,600

2,000

2,400

2,900

3,200

3,000

3,600

2,100
740

2,600
2,420

4,000
2,100

4,800
2,650

5,100
3,100

6,000
2,840

6,100
2,100

6,700
1,150

6,100
2,100

6,000

1,930

1,030

780

280

1,400

1,990

600

1,380

1,320

1,280

23,870

25,550

31,580

34,130

37,200

40,330

42,150

46,030

48,220

51,280

310

410

590

440

620

350

270

280

620

In addition to the above forecasted balance sheets, the following information is also being provided:(i) The estimated Annual Return on Invested Capital (ROIC) and the weighted Average Cost of
Capital (WACC) are:Year
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023

ROIC
10%
10%
12%
12%
12%
14%
14%
14%
15%
15%

WACC
9%
9%
9%
9%
9%
9%
9%
9%
9%
9%

(ii) The forecasted Income Statement of Moon Light for the year ending as at 31.12.2023.

Sales
Cost of Sales
Operating Cost
Depreciation
Interest Cost
+ Non Operating Income

Rs.000'
24,500
(13,800)
10,700
(6,700)
4,000
(1,000)
3,000
(500)
2,500
200

6,000

1,100

150

(iii)

2,700
- Income Tax 33 1/3%
(900)
Net Income
1,800
The estimated operating ratios of Moon Light are :NOPLAT Growth (Constant from 2023)
4%
RONIC (from 2023)
15%
WACC (from 2023)
9%

(iv) The estimated mid year adjustment factor is 1.05.


With the above given information, you are required to calculate the following:
(a)
(b)
(c)
(d)

Invested Capital for each year.


Value Created (Economic Profits) for each year.
Value of the Moon Light Enterprise as at 31.12.2014
Equity value of Moon Light as at 31.12.2014

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