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Final Assignment Valuation

This document contains calculations to determine the intrinsic value of a company. It first calculates the internal growth rate (IGR) as 10.49% based on the given retention rate and return on assets. It then outlines the operating cash flow, net capital spending, and net working capital calculations needed to determine free cash flows for each of the 5 years. Finally, it performs a discounted cash flow valuation to estimate the company's enterprise value at $413,202.61 and fair value at $373,202.61 after subtracting the given amount of debt.

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Samin Chowdhury
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63 views

Final Assignment Valuation

This document contains calculations to determine the intrinsic value of a company. It first calculates the internal growth rate (IGR) as 10.49% based on the given retention rate and return on assets. It then outlines the operating cash flow, net capital spending, and net working capital calculations needed to determine free cash flows for each of the 5 years. Finally, it performs a discounted cash flow valuation to estimate the company's enterprise value at $413,202.61 and fair value at $373,202.61 after subtracting the given amount of debt.

Uploaded by

Samin Chowdhury
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Submitted to:

Hashem M Khaiyyum (KHM)


Lecturer
Department of Finance and accounting
School of business
North South University

Prepared by:
Samin Yasar Chowdhury
ID: 1711811630
Sec:1
First, we’ll need to calculate the IGR. For that we need to know the ROA and retention rate.
Retention rate is given = 50% and for ROA, we’ll need to know the net income, as total asset
value is also given: 100000
For net income in year 1, Net profit = (EBIT-interest-Tax)
EBIT-interest=28000-2000= 26,000
Tax= 7000
Net profit= 26,000-7000= 19,000
So, ROA= 19,000/100,000 = 19%
So, IGR = (ROA*Retention rate)/1-ROA*RR
= (.19*.5) / (1-.19*.5) = 10.49%
In order to calculate FCF, we need to calculate OCF and we need to know the capital and
working capital expenditures. In OCF calculation, we need to know yearly depreciation and tax
expenses. Tax is already given. For depreciation:
There are 3 sets of assets:
75,000 (bought in year 0, could be used for 5 years in our project)
25,000 (bought at the end of year 2, could be used for 3 years in our project)
30,000 (bought at the end of year 4, could be used for 1 years in our project)
Depreciation per year for each asset based on its useful life:
75,000/5 = 15,000
25,000/5= 5000
30,000/5=6000
In our project, we’ll add back 15000 every year for 5 years, 5000 starting from year 3 and will
continue to year 5 and 6000 will be added back for a year in year 5 (we’re adding back based on
how many years we’re using them).
NCS= the capital expenditure of 75,000 in year 0 is our initial investment. There’s a NCS of
25,000 in year 2 and 30,000 in year 4. Also, NWC will be 10,000 and 5000 in year 4 and 5.
IGR=10.49%
IGR 10.49%
1 2 3 4 5
EBIT 28000 30937.2 34182.51 37768.26 41730.15
Depreciation 15000 15000 15000 15000 15000
5000 5000 5000
6000
Tax 7000 7662 8386 9178 10045
OCF (EBIT+Dep-Tax) 36000 38275.2 45796.51 48590.26 57685.15
NCS 25000 30000
NWC 10000 5000
FCF=OCF-NCS-NWC 36000 13275.2 45796.51 8590.258 52685.15

FCF 36000 13275.2 45796.51 8590.258 52685.15

As, tax expense is given. So, we can easily calculate the Tax Rate (Tax Expense/EBIT). 5 years tax
expenses are related with IGR, so that we can get tax rate approximately 25%.
WACC Calculations:

WACC= 14.22%

Long term growth rate=5%


1 2 3 4 5

FCF 36000 13275.2 45796.51 8590.26 52685.15

Terminal Value 599993.55

Present Value $31,518.12 $10,175.52 $30,733.07 $5,047.05 $335,728.85

Enterprise $413,202.61
Value
Fair Value $373,202.61

=​52685.15*(1+5%) / (14.22%-5%)
​=599993.55

Enterprise Value= Sum of Present Value is Company value= ​$413,202.61


Debt= $40,000
Fair Value= 413,202.61-40,000= ​$373,202.61

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