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Acme Sol - For Students

This document contains financial projections for 5 years for a company's baseline performance and various value creation initiatives. It then calculates the company's value using different valuation methods. The baseline performance projection shows figures like EBIT, taxes, operating cash flow and free cash flow over 5 years. Separate tables show the projected financial impact of initiatives to improve margins, reduce working capital and sell assets. The document also calculates the company's weighted average cost of capital (WACC) and values the company using the unlevered valuation model, APV method and weighted WACC. It determines the company is worth ₹382.2 million.

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Barsha Mahapatra
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37 views9 pages

Acme Sol - For Students

This document contains financial projections for 5 years for a company's baseline performance and various value creation initiatives. It then calculates the company's value using different valuation methods. The baseline performance projection shows figures like EBIT, taxes, operating cash flow and free cash flow over 5 years. Separate tables show the projected financial impact of initiatives to improve margins, reduce working capital and sell assets. The document also calculates the company's weighted average cost of capital (WACC) and values the company using the unlevered valuation model, APV method and weighted WACC. It determines the company is worth ₹382.2 million.

Uploaded by

Barsha Mahapatra
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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BASELINE PERFORMANCE

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5


EBIT 20.40 26.80 33.40 36.10 37.90
Tax@34% 6.94 9.11 11.36 12.27 12.89 Tax Rate 34%
EBIT(1-t) 13.46 17.69 22.04 23.83 25.01
Depreciation 21.50 13.50 11.50 12.50 12.70 Given
OCF 34.96 31.19 33.54 36.33 37.71
DWC -4.00 -4.00 -4.20 -5.20 -6.10 Given
CAPX -10.70 -10.10 -10.40 -11.50 -13.10 Given
FCF 20.26 17.09 18.94 19.63 18.51
Terminal Value 164.21 FCF Growth 2%
CF 20.26 17.09 18.94 19.63 182.73
NPV@13.5% 152.91 Unleveraged Rate

VALUE CREATION: MARGIN IMPROVEMENT


Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
DEBIT 2.04 2.68 3.34 3.61 3.79 EBIT Increase
Tax@34% 0.69 0.91 1.14 1.23 1.29 Tax Rate 34%
EBIT(1-t) 1.35 1.77 2.20 2.38 2.50
Depreciation 0.00 0.00 0.00 0.00 0.00 Given
OCF 1.35 1.77 2.20 2.38 2.50
DWC 0.00 0.00 0.00 0.00 0.00 Given
CAPX 0.00 0.00 0.00 0.00 0.00 Given
FCF 1.35 1.77 2.20 2.38 2.50
Terminal Value 22.19 FCF Growth 2%
CF 1.35 1.77 2.20 2.38 24.69
NPV@13.5% 18.61 Unleveraged Rate

VALUE CREATION: WORKING CAPITAL


Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
EBIT 0.00 0.00 0.00 0.00 0.00
Tax@34% 0.00 0.00 0.00 0.00 0.00 Tax Rate 34%
EBIT(1-t) 0.00 0.00 0.00 0.00 0.00
Depreciation 0.00 0.00 0.00 0.00 0.00 Given
OCF 0.00 0.00 0.00 0.00 0.00
DWC 16.30 2.10 Inventories
CAPX 0.00 0.00 0.00 0.00 0.00 Given
FCF 16.30 2.10 0.00 0.00 0.00
Terminal Value 0.00 FCF Growth 2%
CF 16.30 2.10 0.00 0.00 0.00
NPV@13.5% 15.99 Unleveraged Rate

VALUE CREATION: ASSET SALES


Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
EBIT 0.00 0.00 0.00 0.00 0.00
Tax@34% 0.00 0.00 0.00 0.00 0.00 Tax Rate 34%
EBIT(1-t) 0.00 0.00 0.00 0.00 0.00
Depreciation 0.00 0.00 0.00 0.00 0.00 Given
OCF 0.00 0.00 0.00 0.00 0.00
DWC 0.00 0.00 Given
CAPX 9.00 6.90 3.40 0.00 0.00 Asset Sales
FCF 9.00 6.90 3.40 0.00 0.00
Terminal Value 0.00 FCF Growth 2%
CF 9.00 6.90 3.40 0.00 0.00
NPV@13.5% 15.61 Unleveraged Rate

VALUE CREATION: LONG-RUN GROWTH


Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
EBIT 0.00 0.00 0.00 0.00 0.00
Tax@34% 0.00 0.00 0.00 0.00 0.00 Tax Rate 34%
EBIT(1-t) 0.00 0.00 0.00 0.00 0.00
Depreciation 0.00 0.00 0.00 0.00 0.00 Given
OCF 0.00 0.00 0.00 0.00 0.00
DWC 0.00 0.00 0.00 0.00 0.00 Given
CAPX 0.00 0.00 0.00 0.00 0.00 Given
FCF 0.00 0.00 0.00 0.00 0.00
Terminal Value 141.76 Old Growth 2%
CF 0.00 0.00 0.00 0.00 141.76 New Growth 5%
NPV@13.5% 75.26 Unleveraged Rate

CAPITAL STRUCTURE
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Revolver@7.5% 13.0 0.2 4.8 11.7 20.9 20.0 7.50%
Bank Loan@8.0% 80.0 60.0 40.0 20.0 0.0 0.0
Sub Debt@9.5% 150.0 150.0 150.0 150.0 150.0 0.0
LT Debt@9.0% 0.0 0.0 0.0 0.0 0.0 140.0 9%
Total Debt 243.0 210.2 194.8 181.7 170.9 160.0
Total Equity 64.0 64.7 71.8 84.5 99.9 117.2
Total Liabilities 307.0 274.9 266.6 266.2 270.8 277.2
INTEREST TAX SHIELD
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Tax Shield 7.35 6.48 6.06 5.69 5.38
Terminal Value 125.4855
FCF 7.35 6.48 6.06 5.69 130.86
NPV@9.5% 103.82

BASELINE PERF 152.91 Vul 278.39


INTEREST TAX S 103.82 Vits 103.82
VALUE CREATIO 18.61 Vl 382.20
VALUE CREATION 15.99
VALUE CREATION 15.61
VALUE CREATIO 75.26
ACME VALUE 382.20

WACC
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
EBIT 22.44 29.48 36.74 39.71 41.69 EBIT + 10%
Tax@34% 7.63 10.02 12.49 13.50 14.17 Tax Rate 34%
EBIT(1-t) 14.81 19.46 24.25 26.21 27.52
Depreciation 21.50 13.50 11.50 12.50 12.70 Given
OCF 36.31 32.96 35.75 38.71 40.22
DWC 12.30 -1.90 -4.20 -5.20 -6.10 WC+Reduction
CAPX -1.70 -3.20 -7.00 -11.50 -13.10 CAPX+Sale
FCF 46.91 27.86 24.55 22.01 21.02
Terminal Value 362.11 FCF Growth 5%
CF 46.91 27.86 24.55 22.01 383.13
NPV@WACC 323.56

THE APV

Vul ₹ 241.99
FCF 46.9104 27.857 24.548 22.0086 21.0154
TV(ul) 259.602
46.9104 ### ### 22.0086 280.6174
PV Intermittent ITS ₹ 24.51
TV (WACC of fifthe year) 325.91338
TV(ITS-Fin Rule 2) 66.31138
PVTV(ITS FR2) 35.205358
APV ₹ 301.71
34.00%

2.00%

13.50%

10.00%
34.00%

2.00%

13.50%

34.00%

2.00%
13.50%

34.00%

2.00%

13.50%

34.00%

18.51
2.00%
5.00%
13.50%

Wd 0.5772 Kd 8.81%
We 0.4228 Ke 19.90%
W(5th yea 11.77%
WACC Calculations
Source of funds
Debt: $ Amt % of funds After-tax cost
34.00% Revolving credit @ 7.5% $13 4.20% 5.00%
Bank debt @ 8.0% 80 26.10% 5.30%
Subordinated debt @ 9.5% 150 48.90% 6.30%
Equity 64 20.80% 31.50%
Total funds 307 100.00%

Where from re = 29.5%?


5.00% At D/E = 0 we have ra = 13.5%.
At D/E = 1 we have re = 18% = 13.5% + (13.5% - 9.0%) where 9.0 % is borrowing rate
At D/E = 4 we have re = 13.5 + 4(13.5% - 9.5%) = 29.5% where 9.5% is borrowing rat
At D/E of 1.36 19.62
Weighted cost Wd
0.21% 0.0535 0.27% 11.09%
1.38% 0.3292 1.74%
3.08% 0.6173 3.89%
6.55% Post tax 5.90% 31.5
11.23% pre tad 8.94%
Ke 30.81%

%) where 9.0 % is borrowing rate at 50% debt.


.5% where 9.5% is borrowing rate at 80% debt.
137600
10320
147920

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