Free cashflow Valuation example for Valuation Class

The CoCo Corp. had sales last year of Rs 5 million; its operating profit margin (operating profits divided by sales) has been 10%, which should continue into the future. You expect sales to grow at 12% for 4 years and thereafter at 5%.

CoCos tax rate is 30% and the owners do not steal taxes. Typically, fixed assets as a percentage of sales are 25% and the current assets to sales (net of any spontaneous financing such as Accounts payable is 20%. Also, the amount of the firms depreciation has approximately equaled the cost of replacement assets. The firms outstanding debt is Rs 1,200,000. CoCos cost of capital is 15%.

We will work the free cashflow valuation in class.

What will change if :

a) We changed the working capital to sales requirement? And

b) If the cost of replacement assets did NOT Equal the firms depreciation?

14:01 II 16 . 53% Please try and work through the Valuation example attached......just follow the slide that shows how to calculate Free Cash Flows... Start with Sales and calculate sales for Years 1 through 5, then Op Profits, the Taxes to get Profit After Taxes. Then throw in the INCREMENTAL investments needed for NWC and Fixed Assets and you will get FCF for each year. Then get PV today of these 5 years FCF, and calculate the OV of cashflows starting in Year 5 and growing 5% in perpetuity....you should know the formula. Bring this to present time and you will have total value... 14:01 II 16 . 53% Please try and work through the Valuation example attached......just follow the slide that shows how to calculate Free Cash Flows... Start with Sales and calculate sales for Years 1 through 5, then Op Profits, the Taxes to get Profit After Taxes. Then throw in the INCREMENTAL investments needed for NWC and Fixed Assets and you will get FCF for each year. Then get PV today of these 5 years FCF, and calculate the OV of cashflows starting in Year 5 and growing 5% in perpetuity....you should know the formula. Bring this to present time and you will have total value