As a member of Jerabek's team, you are responsible for estimating the value of Teuer Furniture using

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Question:

As a member of Jerabek's team, you are responsible for estimating the value of Teuer Furniture using a discounted cash flow approach. Prepare a memo to present to Teuer's management that details the value of Teuer and the key assumptions underlying your valuation.

The memo should specify what Teuer is worth per share, and why.

Support your answer with

logic and the facts from the case.

The bullet points below should help guide your analysis.

1. *Construct the pro forma financials*. To value Teuer Furniture, the first step is to construct a pro forma income statement and pro forma balance sheet. Use the assumptions and data from the case. Templates have been provided for you. As a check that your numbers are correct, verify that the balance sheet balances.

2 *Value the firm using the discounted cash flow method*. Value Teuer Furniture by

constructing the cash flow from assets for the next six years (2013 to 2018). Your value should not include the 2012 cash flows. You will need to include a terminal yalue in your valuation. Initially, assume that the long-term growth rate of Teuer Furniture's cash flows

is 3.5% and that the firm's cost of capital is 12.1%. What is the value of Teuer Furniture on a per-share basis?

3 *Evaluate the key assumptions.* The value of Teuer that you calculated is a function of the

assumptions made by you and Teuer's finance team. Your base case valuation should be

built upon the forecasts of Jerabek's team. Discounted cash flow analysis depends upon a

large number of assumptions. You can change the assumptions where you think it appropriate. If you do make changes, be prepared to explain and defend your

assumptions-especially the ones that are crucial. An assumption may be considered crucial when it is both empirically relevant (i.e., changing the assumption has a non-trivial effect on the answer) and cannot be precisely measured.