Tanner is a division of diversified company and is involved in providing technology services.

1. Using the divisional cost of capital method, estimate the Weighted Average Cost of Capital (WACC) for Tanner
2. Using the Discounted Free Cash Flow Valuation Methodology estimate the intrinsic price per share of Tanner.

Divisional Cost of Capital and Valuation
				Comparable Firm Information
					Debt/Equity	Equity beta
Assumptions				Comparable Peer Firms
Risk Free Rate	4.50%			Novo Disc	0.65	1.6
Market Risk Premium	5.00%			ITS Inc	0.50	1.75
Tax Rate	34%			Morton Technology	0.80	1.9
Number of Shares Outstanding in Millions	100
Tanner Segment Information
Market Value of Debt Outstading- Millions	$ 400.00			Valuation Model for Tanner
Number of Years Bonds Outstanding	15			Income Statement	Most Recent Year	1	2	3	4	5
Face Value of Debt Outstanding in Millions	$430.00			Sales	$ 900.00
Coupon Rate Paid Semi-Annually	5%			Cost of Goods Sold	$ 711.00
Sales in Most Recent Year in Millions	$ 900.00			Depreciation	$ 18.00
Debt/Equity Ratio for Tanner	0.80			EBIT	$ 171.00
Long Run Growth Rate	3.00%			Interest	$ 16.00
Explicit Forecast Period for Valuation in years	5			Taxes	$ 52.70
				Net Income	$ 102.30
Forecast Factors				Retained Earnings	$ 102.30
Target Annual Sales Growth over Explicit Forecast Period	8.00%
Projected Operating Margins	18.00%			Balance Sheet
Cash/Sales	3.89%			Assets
Accounts Receivables/Sales	6.67%			Cash	$ 35.00
Inventory/Sales	16.67%			Accounts Receivables	$ 60.00
Depreciation/Sales	2%			Inventory	$ 150.00
Capital Expenditures/Sales	5%			Net PPE	$ 400.00
Accounts Payable/Sales	8.33%			Total Assets	$ 645.00
Accruals/Sales	11.11%
Summary of Results for Tanner				Accounts Payables	$ 75.00
Beta Asset for Tanner				Accruals	$ 100.00
Beta Equity for Tanner				Long Term Debt	$ 325.00
Cost of Equity for Tanner				Common Stock	$ 100.00
Pre-Tax Cost of Debt for Tanner				Retained Earnings	$ 45.00
Debt/Value for Tanner	45%			Total Shareholder Equity	$ 145.00
Weighted Average Cost of Capital for Tanner				Liabilities and Shareholder Equity	$ 645.00

Answer rating: 100% (QA)

Using the divisional cost of capital method Wei... View the full answer