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DCF and fair market value

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
Sales 500
Cost of goods sold 250
SG&A expense 50
EBIT 200
Interest expense 40
Taxable income 160
Taxes 64
Net Income 96

2012 Balance Sheet
Cash 50 Accounts payable 70
Accounts receivable 100 Total current liab. 70
Inventory 200
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
Inventory 220
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.

Solution Preview

Please see the attached spreadsheet for the discounted cash flow analysis ...

Solution Summary

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.

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