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Davie  Corp is considering acquiring Enterprise Inc and you are on the team that is valuing the...

Davie  Corp is considering acquiring Enterprise Inc and you are on the team that is valuing the potential target firm.  Tiger Inc’s revenue growth rate is 10.2%, its COGS is 58% of sales, SG&A is 22% of sales, and NWC is 25% of sales.  The forecast period for the valuation is 5 years, after which your team will apply a steady state growth rate is 6%.  You are using a WACC rate of 13.5% and a tax rate is 32%.  Initial year zero revenue is $10,000.  Depreciation is $1350 per year, CAPEX is $1300 per year.  The forecast period is 5 years.  

  1. What are free cash flows per year?
  2. What is the terminal value (steady state value)?
  3. What is Enterprise Value for this firm?
  4. The firm has cash of $550, debt of $2000, and preferred stock of $750.  What is the value of equity?
  5. If there are 120 shares outstanding, what is stock price?
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Answer #1

Free Cash Flow = Net income + Depreciation – Capital Expenditure

                         = $10,000+ $1,350- $1,300= $12,650

Terminal Value= EV/ EBIT = $2,200/$9383= 0.2344

Enterprise Value= Debt+Preferred stock-Cash

= $2,000+$750-$550 = $2,200

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