Section 2 - Valuation Frank and his brother, George, are thinking of starting their own company....

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Section 2 - Valuation Frank and his brother, George, are thinking of starting their own company. The company will be a coffee shop, and the two brothers expect the initial investment to reach 500,000 SAR. If the project is actually implemented, the brothers will ask for a 300,000 SAR bank loan; the rest of the investment will be financed by their savings. The brothers estimate that the project's terminal value to be 650,000 SAR, at the end of 2025. The next table includes information concerning the project's capital structure and the cost of capital: Capital Structure Inputs: Risk-free rate Project's Beta Market's Expected Return Corporate Tax Rate Bank Loan interest rate The following tables exhibit various data from the projections carried-out by Frank and his brother: Income Statement - Projections Revenues from Sales Cost of Goods Sold Gross Profit General & Administrative Expenses EBITDA Depreciation & Amortization EBIT Interest Expenses Earnings Before Taxes Taxes (30%) Net Income Applicable to Shareholders Other Information Accounts Receivable Inventory Accounts Payable Investments Divestments 3% 0.9 13% 30% 5% Bank Loans-New Debt Bank Loans-Reimbursements 2023 350,000 140,000 210,000 65,000 145,000 100,000 45,000 5,400 39,600 11,880 27,720 2023 15,000 24,000 10,000 60,000 2024 400,000 160,000 240,000 72,000 168,000 100,000 68,000 3,600 64,400 19,320 45,080 2024 18,000 26,000 15,000 60,000 2025 420,000 168,000 252,000 80,000 172,000 100,000 72,000 1,800 70,200 21,060 49,140 2025 22,000 28,000 20,000 60,000 Using the Excel template provided to you (see the LMS platform), you need to: 2.1. Estimate the project's Cash-Flows applying the Free Cash-Flow to the Firm Method (FCFF). 2.2. Estimate the Weighted Average Cost of Capital (WACC). 2.3. Compute the project's Expected NPV according to the FCFF method. 2.4. Estimate the project's Cash-Flows applying the Free Cash-Flow to Equity Method (FCFE). 2.5. Compute the project's Expected NPV according to the FCFE method. 2.6. Using the FCFF approach, what is the project's expected Internal Rate of Return (IRR)? Section 2 - Valuation Frank and his brother, George, are thinking of starting their own company. The company will be a coffee shop, and the two brothers expect the initial investment to reach 500,000 SAR. If the project is actually implemented, the brothers will ask for a 300,000 SAR bank loan; the rest of the investment will be financed by their savings. The brothers estimate that the project's terminal value to be 650,000 SAR, at the end of 2025. The next table includes information concerning the project's capital structure and the cost of capital: Capital Structure Inputs: Risk-free rate Project's Beta Market's Expected Return Corporate Tax Rate Bank Loan interest rate The following tables exhibit various data from the projections carried-out by Frank and his brother: Income Statement - Projections Revenues from Sales Cost of Goods Sold Gross Profit General & Administrative Expenses EBITDA Depreciation & Amortization EBIT Interest Expenses Earnings Before Taxes Taxes (30%) Net Income Applicable to Shareholders Other Information Accounts Receivable Inventory Accounts Payable Investments Divestments 3% 0.9 13% 30% 5% Bank Loans-New Debt Bank Loans-Reimbursements 2023 350,000 140,000 210,000 65,000 145,000 100,000 45,000 5,400 39,600 11,880 27,720 2023 15,000 24,000 10,000 60,000 2024 400,000 160,000 240,000 72,000 168,000 100,000 68,000 3,600 64,400 19,320 45,080 2024 18,000 26,000 15,000 60,000 2025 420,000 168,000 252,000 80,000 172,000 100,000 72,000 1,800 70,200 21,060 49,140 2025 22,000 28,000 20,000 60,000 Using the Excel template provided to you (see the LMS platform), you need to: 2.1. Estimate the project's Cash-Flows applying the Free Cash-Flow to the Firm Method (FCFF). 2.2. Estimate the Weighted Average Cost of Capital (WACC). 2.3. Compute the project's Expected NPV according to the FCFF method. 2.4. Estimate the project's Cash-Flows applying the Free Cash-Flow to Equity Method (FCFE). 2.5. Compute the project's Expected NPV according to the FCFE method. 2.6. Using the FCFF approach, what is the project's expected Internal Rate of Return (IRR)?

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Here are the calculations for valuation using FCFF and FCFE methods 21 F... View the full answer