Assumed Free Cash Flows years 1-10 Example of a Discounted Cash Flow Analysis (5 millions) Year...

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Assumed Free Cash Flows years 1-10 Example of a Discounted Cash Flow Analysis (5 millions) Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year Year & Year 9 Year 10 Sales 3582 3840 4116 4413 4730 5071 5436 5828 6247 6696 Operating Income 330 357 387 419 454 492 533 577 625 676 Other income. Corporate expenses (14) (14) (14) (14) (14) (14) (14) (14) (14) (14) EBIT 316 343 373 405 440 478 529 563 611 662 Net Income 186 202 220 239 200 282 312 332 360 391 Change in NWC 0 0 Cash Flow 186 о 220 0 0 41 42 45 49 52 230 200 242 270 207 311 330 a. Growing at 7.2% a year. b. Operating margin improving from 9.2%-10.1% over ten years. Here operating income does not reflect other income, interest expense or corporate expense. c. FY 1988: $29.2-$42.8=-$13.6 d. Tax rate 41% Source: Interco Case Study Let's value Interco using a discounted free cash flow valuation. Given our assumptions, calculate Interco's total firm value using a discount rate for Interco's free cash flow (WACC) of 10%. Hint: Exhibit 12 reveals that, under these assumptions and a discount rate of 10%, Interco's stock price per share is estimated to be $80. Thus, you can check whether your calculation of total firm value is correct by seeing whether your total firm value answer implies a stock price of $80 per share! ANSWER: Assumed Free Cash Flows years 1-10 Example of a Discounted Cash Flow Analysis (5 millions) Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year Year & Year 9 Year 10 Sales 3582 3840 4116 4413 4730 5071 5436 5828 6247 6696 Operating Income 330 357 387 419 454 492 533 577 625 676 Other income. Corporate expenses (14) (14) (14) (14) (14) (14) (14) (14) (14) (14) EBIT 316 343 373 405 440 478 529 563 611 662 Net Income 186 202 220 239 200 282 312 332 360 391 Change in NWC 0 0 Cash Flow 186 о 220 0 0 41 42 45 49 52 230 200 242 270 207 311 330 a. Growing at 7.2% a year. b. Operating margin improving from 9.2%-10.1% over ten years. Here operating income does not reflect other income, interest expense or corporate expense. c. FY 1988: $29.2-$42.8=-$13.6 d. Tax rate 41% Source: Interco Case Study Let's value Interco using a discounted free cash flow valuation. Given our assumptions, calculate Interco's total firm value using a discount rate for Interco's free cash flow (WACC) of 10%. Hint: Exhibit 12 reveals that, under these assumptions and a discount rate of 10%, Interco's stock price per share is estimated to be $80. Thus, you can check whether your calculation of total firm value is correct by seeing whether your total firm value answer implies a stock price of $80 per share! ANSWER:

Answer rating: 100% (QA)

To calculate the total firm value of Interco using a discounted free cash flow valuation we need to ... View the full answer