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Company Valuation - AVX Corporation

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Using the attached valuation spreadsheet as a model, values the AVX Corporation. Replace the values in the spreadsheet for the values of AVX Corp.
I have attached also the AVX Corporation's financial information.

INPUTS FOR VALUATION
Current Inputs
Enter the current revenues of the firm = $12,406
Enter current capital invested in the firm = $20,000 { As a naïve estimate, you can use BV of debt + BV of Equity)
Enter the current depreciation = $233
Enter the current capital expenditures for the firm = $298
Enter the change in Working Capital in last year = $115
Enter the value of current debt outstanding = $-
Enter the number of shares outstanding = 1,500.00

High Growth Period Your Inputs
Enter the growth rate in revenues for the next 5 years = 25.00%
What will all operating expenses be as a % of revenues in the fifth year? 70.00% (Operating expenses include depreciation: This is equal to (1-Pre-tax Operating Margin))
How much debt do you plan to use in financing investments? 0%
Enter the growth rate in capital expenditures & depreciation 25.00%
Enter working capital as a percent of revenues 7.50%
Enter the tax rate that you have on corporate income 36.00%
What beta do you want to use to calculate cost of equity = 1.25
Enter the current long term bond rate = 6.50%
Enter the market risk premium you want to use = 5.50%
Enter your cost of borrowing money = 8.50%
Stable Period
Enter the growth rate in revenues = 6.00%
Enter operating expenses as a % of revenues in stable period = 75.00%
Enter capital expenditures as a percent of depreciation in this period 200.00% See capital expenditure worksheet (capex.xls) for details.
How much debt do you plan to use in financing investments? 5.00%
Enter interest rate of debt in stable period = 7.50%
What beta do you want to use in the stable period = 1.10
ESTIMATED CASHFLOWS
Base 1 2 3 4 5 6 7 8 9 10
Growth in Revenue 25.00% 25.00% 25.00% 25.00% 25.00% 21.20% 17.40% 13.60% 9.80% 6.00%
Growth in Deprec'n 25.00% 25.00% 25.00% 25.00% 25.00% 21.20% 17.40% 13.60% 9.80% 6.00%
Revenues $12,406 $15,508 $19,384 $24,230 $30,288 $37,860 $45,886 $53,871 $61,197 $67,194 $71,226
Operating Expenses
% of Revenues 70.00% 70.00% 70.00% 70.00% 70.00% 70.00% 71.00% 72.00% 73.00% 74.00% 75.00%
- $ Operating Expenses $8,684 $10,855 $13,569 $16,961 $21,202 $26,502 $32,579 $38,787 $44,674 $49,724 $53,420
EBIT $3,722 $4,652 $5,815 $7,269 $9,086 $11,358 $13,307 $15,084 $16,523 $17,471 $17,807
Tax Rate 36.00% 36.00% 36.00% 36.00% 36.00% 36.00% 36.00% 36.00% 36.00% 36.00% 36.00%

EBIT (1-t) $2,382 $2,977 $3,722 $4,652 $5,815 $7,269 $8,517 $9,654 $10,575 $11,181 $11,396
+ Depreciation $233 $291 $364 $455 $569 $711 $862 $1,012 $1,149 $1,262 $1,338
- Capital Expenditures $298 $373 $466 $582 $728 $909 $1,263 $1,616 $1,969 $2,322 $2,675
- Change in WC $115 $233 $291 $363 $454 $568 $602 $599 $549 $450 $302
= FCFF $2,202 $2,664 $3,329 $4,162 $5,202 $6,503 $7,514 $8,451 $9,206 $9,671 $9,756
Terminal Value (in '05) $167,813
COSTS OF EQUITY AND CAPITAL
1 2 3 4 5 6 7 8 9 10
Cost of Equity 13.38% 13.38% 13.38% 13.38% 13.38% 13.21% 13.05% 12.88% 12.72% 12.55%
Proportion of Equity 100.00% 100.00% 100.00% 100.00% 100.00% 99.00% 98.00% 97.00% 96.00% 95.00%
After-tax Cost of Debt 5.44% 5.44% 5.44% 5.44% 5.44% 5.31% 5.18% 5.06% 4.93% 4.80%
Proportion of Debt 0.00% 0.00% 0.00% 0.00% 0.00% 1.00% 2.00% 3.00% 4.00% 5.00%
Cost of Capital 13.38% 13.38% 13.38% 13.38% 13.38% 13.13% 12.89% 12.65% 12.40% 12.16%
Cumulative WACC 113.38% 128.54% 145.73% 165.22% 187.32% 211.92% 239.23% 269.48% 302.91% 339.75%

Present Value $2,349 $2,590 $2,856 $3,149 $3,472 $3,546 $3,532 $3,416 $3,193 $52,265

FIRM VALUATION
Value of Firm $80,367
- Value of Debt $-
Value of Equity $80,367
Value of Equity per Share $53.58

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Value of Firm by year $80,367 $88,453 $96,954 $105,760 $114,703 $123,542 $132,250 $140,844 $149,448 $158,314
$ Value of Debt $- $- $- $- $- $1,235 $2,645 $4,225 $5,978 $7,916

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Solution Summary

This solution helps with the valuation of AVX Corporation. It uses the valuation spreadsheet as a model. It replaces the values in the spreadsheet for those of the AVX Corporation. Solution are provided in an Excel spreadsheet.

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I have uploaded your study guide in an Excel file. Please look at the comments I made when studying it.

The following discussion is from the student's follow up questions

1. Does capital investment include Accounts Payable and other current liabilities?
Yes, accounts payable and other current liabilities are usually used to finance short term assets

2. ...

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