Consider the financial statements below. The firm's cost of capital is 10%. The firm is stable and the long-term growth rate for all items is expected to be 4%. Use the information below to estimate the fair market value of the companies equity as of year-end 2013.
2013 Income Statement
Cost of goods sold 250
SG&A expense 50
Interest expense 40
Taxable income 160
Net Income 96
2012 Balance Sheet
Cash 50 Accounts payable 70
Accounts receivable 100 Total current liab. 70
Total current assets 350 Long-term debt 400
Gross fixed assets 1,000 Common stock 200
Accumulated depreciation 200 Retained earnings 480
Net fixed assets 800 Total equity 680
Total 1,150 Total 1,150
2013 Balance Sheet
Cash 70 Accounts payable 100
Accounts receivable 130 Total current liab. 100
Total current assets 420 Long-term debt 450
Gross fixed assets 1,120 Common stock 250
Accumulated depreciation 270 Retained earnings 470
Net fixed assets 850 Total equity 720
Total 1,270 Total 1,270
Please use DCF and show work and briefly describe rationale of calculation so I can understand the process better.
Please see the attached spreadsheet for the discounted cash flow analysis ...
The spreadsheet contains a simple valuation model that can be used to find the equity value of a company. The model is simple in nature, but can be used as a starting point for more complex valuation projects.