Explore BrainMass

Explore BrainMass

    MBA 540 Valuation Exercise

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    The terminal value is going to be a large number but please keep in mind you need to calculate the present value of the terminal value.

    As far as net present value is concerned, please refer to Excel Help section per "NPV" function. If you would like to use a formula, then use the following:

    PV = Cash Flow at n th year / (1 + discount rate)^n th year. By way of example, let's the cash flow at 5th year was $1,000. The discount rate is 12%. The present value of $1,000 at 5th year is 1000/ (1 + 12%)^5 = 567.43.

    Since you have the cash flows for 5 years, you need to calculate the present value for each year or you can use Excel NPV formula to calculate the entire cash flows at once.

    Please review the "examples" tab. Basically, you need to use public sources (such as yahoo finance, smartmoney, cnnfn.com, wsj.com, etc.) to find out these companies' financial information. Then you will come up with revenue and EBITDA multiples to come up with an estimated value Shang-wa. This is one of the valuation techniques.

    -----------------

    see attached for more....

    (US$ in 000's) 2002 2003 2004 2005 2006 2007 2008 2009
    Actual Actual Actual Fcst Fcst Fcst Fcst Fcst
    Revenue 65,089 80,191 109,288 109,288 109,288 109,288 109,288 109,288
    Revenue Growth % 23.2% 36.3% 0.0% 0.0% 0.0% 0.0% 0.0%
    Cost of Goods Sold 45,259 51,446 66,381 54,644 54,644 54,644 54,644 54,644
    Gross Profit 19,830 28,745 42,907 54,644 54,644 54,644 54,644 54,644
    Gross Margin 30.5% 35.8% 39.3% 50.0% 50.0% 50.0% 50.0% 50.0%

    Operating Expense 12,861 15,694 20,201 27,322 27,322 27,322 27,322 27,322
    Operating Expense % of revenue 20% 20% 18% 25% 25% 25% 25% 25%

    Operating Income 6,969 13,051 22,706 27,322 27,322 27,322 27,322 27,322

    Add: Depreciation 7,334 5,959 4,736 - - - - -

    EBITDA 14,303 19,010 27,442 27,322 27,322 27,322 27,322 27,322

    Change in Working Capital (19,797) (1,381) (2,253) (2,000) (2,000) (2,000) (2,000) (2,000)

    Less: Capital Expenditures (40,438) (24,419) (24,551) - - - - -

    Cash Flow (45,932) (6,789) 638 25,322 25,322 25,322 25,322 25,322
    Terminal Value

    Net Cash Flow (45,932) (6,789) 638 25,322 25,322 25,322 25,322 25,322

    NPV $-

    DCF Instructions
    * Only the cells shaded yellow are the ones you need to fill out
    1. Fill out the revenue section (Year 2005 through Year 2009) based on the average revenue growth % from 2002-2004
    2. Fill out the gross margin section based on the average gross margin % from 2002-2004
    3. Fill out the operating expense section based on the average operating expense % (of revenue) from 2002-2004
    4. Fill out the Capital Expenditures section. Use 15% of revenue. Make sure you use a minus (-) sign in front of each capEx figure
    5. Calculate the Terminal Value in Year 2009 by using 8.0x EBITDA multiple (i.e., Shang-wa's 2009 projected EBITDA x 8.0x)
    6. Calculate the NPV based on a 15% discount rate. Please remember you don't use the historical financials for the NPV calculation (you only use the projected net cash flows)

    (US$ in 000's) Revenue EBIT "EBIT
    Margin" EBITDA "EBITDA
    Margin" Net Income "Net
    Margin" "Interest-Bearing
    Debt" Cash "Market
    Value as of
    9/6/06" "Enterprise
    Value (EV)" EV/Revenue EV / EBITDA
    Kemet 234,000 - - 0.0% - 0.0% - 0.0% - - - - 0.0x 0.0x
    AVX Corp - - 0.0% - 0.0% - 0.0% - - - - 0.0x 0.0x
    Vishay Intertechnology - - 0.0% - 0.0% - 0.0% - - - - 0.0x 0.0x
    WMS Industries - - 0.0% - 0.0% - 0.0% - - - - 0.0x 0.0x
    Evergreen Solar - - 0.0% - 0.0% - 0.0% - - - - 0.0x 0.0x

    Average 0.0x 0.0x

    Shang-wa's Enterprise Value
    Based on Revenue Multiple $-
    Based on EBITDA Multiple $-

    Average EV $-

    Comparable Public Company Approach Instructions:
    * Only the cells shaded yellow are the ones you need to fill out
    1. Use online finance websites (i.e., Yahoo Finance, Google, Smartmoney, Wall Street, etc.) to collect the financial data for the companies listed above. Use the most recent financial data based on the trailing twelve months (or last twelve months)
    2. Calculate the EV/Revenue and EV/EBITDA Multiple
    3. Calculate Shang-wa's estimated enterprise value based on the average multiples you have come up

    © BrainMass Inc. brainmass.com October 1, 2020, 8:23 pm ad1c9bdddf
    https://brainmass.com/business/net-present-value/mba-540-valuation-exercise-138573

    Attachments

    Solution Summary

    Work is presented in Excel so you can be confident of how to do this work.

    $2.19

    ADVERTISEMENT