Note: PLEASE Use the excel sheet provided by me. All you have to do is Change the assumption value in Assumptions tab and Make a new VALUATION SHEET with proper format. PLEASE READ THE INSTRUCTIONS CAREFULLY..... Below are historical financial statements and other pertinent data for Supervalue Inc. Please use these data in the following exercises. You may assume for the purposes of your calculations that "today" is January 1, 2016?that is, you do not have to worry about partial year calculations. Round your answers to the nearest 1,000 (consistent with lst year's reporting).

A recent article in the Wall Street Journal reports that Supervalue (owner of grocery stores such as Albertsons and Jewel-Osco) is considering putting itself up for sale. Supervalue's earnings have taken a hit in the most recent quarter, falling 45%. Its share price has been falling as well, and management seems to be abandoning its previously optimistic outlook. Let's say you are the CEO of a competing grocery store chain and are considering the acquisition of Supervalue. You are confident that you will be able to achieve synergies, and you plan to operate the target as a subsidiary. You are now ready to calculate the value of Supervalue to determine if these synergies will be enough to make this a deal worth pursuing, and what price you should offer. Use these assumptions and the provided historical financial statements to answer the following questions.

Please consider the following assumptions:

Supervalue expects the expansion will increase revenues and operating expenses by 20% in 2016, 15% in 2017, 10% in 2018 and 3% thereafter.

Beginning in 2018, Supervalue will settle into a permanent free cash flow growth rate of 3% per year.

The levels of cash and interest-bearing debt are expected to remain constant through 2017, then they will grow at the same rate as free cash flows. Any liabilities labeled as "other" are non-interest-bearing.

Supervalue's marginal cost of debt is 7.9%, and WACC is 11.0%. The marginal tax rate is 35%.

Make any other assumptions you feel are necessary to perform the following tasks, and explain why you are making them.

Required

(A) 15 points. In Excel, create a pro forma income statement and balance sheet for Supervalue for 2016 through 2020.

(B) 15 points. Refer to your pro forma income statement from part (a) and the pro forma balance sheet provided. All numbers are in thousands of dollars. What are Supervalue's free cash flows for 2016 through 2020? You may provide your answer using the attached template.

(c) 10 points. Based on your previous answers and using a DCF analysis, what is Supervalue's current (beginning 2013) enterprise value? Equity value? Use the EBITDA multiple method to calculate the terminal value. The appropriate EBITDA multiple is 7x.

(D) 4 points. Given your calculations in part (c), what is the maximum price (equity value) you would be willing to pay for Supervalue? Briefly explain why you wouldn't be willing to pay more than this. Fee free to comment on

An income statement, balance sheet, subsidiary schedules and assumptions page have been provided for you. You will not be able to change the financial statements and schedules directly. They will be locked. You WILL have to modify the assumptions based on your judgment. That will change the income, assets, liabilities, and equity automatically. However,You WILL have to create the valuation sheet. A comment sheet is provided as the last tab to answer the text questions

Help me to understand this question step by step. Thank you.

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Income Stmt John Brevard Supervalue Income Statement All numbers are in millions. Actual Total Revenue Cost of Revenue Gross Profit Operating Expenses Depreciation S, G & A Non-recurring charge Operating Income Interest Expense Earnings before income taxes Income Taxes Net Income 2015 38,500.0 26,180.0 12,320.0 Projected 2016 38,500.0 0.0 38,500.0 2017 38,500.0 0.0 38,500.0 2018 38,500.0 0.0 38,500.0 2019 38,500.0 0.0 38,500.0 2020 38,500.0 0.0 38,500.0 968.0 5,941.0 1,500.0 3,911.0 410.8 3,500.2 1,203.0 2,297.2 6,362.0 0.0 0.0 32,138.0 0.0 32,138.0 0.0 32,138.0 6,362.0 0.0 0.0 32,138.0 0.0 32,138.0 0.0 32,138.0 6,362.0 0.0 0.0 32,138.0 0.0 32,138.0 0.0 32,138.0 6,362.0 0.0 0.0 32,138.0 0.0 32,138.0 0.0 32,138.0 6,362.0 0.0 0.0 32,138.0 0.0 32,138.0 0.0 32,138.0 Page 1 Bal Sheet John Brevard Supervalue Balance Sheet All numbers are in millions. 2015 1,750 4,097 4,783 10,630 2016 39,050 0 0 39,050 2017 71,188 0 0 71,188 2018 103,326 0 0 103,326 2019 135,464 0 0 135,464 2020 167,602 0 0 167,602 Net PPE 6,362 6,362 6,362 6,362 6,362 6,362 Goodwill 2,466 2,466 2,466 2,466 2,466 2,466 19,458 47,878 80,016 112,154 144,292 176,430 Payables Other Liabilities Long Term Debt 2,888 830 4,924 0 0 4,924 0 0 4,924 0 0 4,924 0 0 4,924 0 0 4,924 Common Equity Retained Earnings 1,762 9,054 1,762 41,192 1,762 73,330 1,762 105,468 1,762 137,606 1,762 169,744 19,458 47,878 80,016 112,154 144,292 176,430 Cash Receivables Inventories Current Assets Total Assets Total Liabilities & Equity Page 2 Valuation John Brevard Supervalue Valuation All numbers are in millions. 2016 2017 2018 Page 3 2019 2020 Subsidary Schedules John Brevard Supervalue Subsidary Schedules Net Working Capital Receivables Inventories Payables Other Liabilities (current) Total Change NWC Retained Earnings Beg NI Div End 2015 2016 2017 2018 2019 2020 4097 4783 2888 830 5162 0 0 0 0 0 5162 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 9054 32138 0 41192 41192 32138 0 73330 73330 32138 0 105468 105468 32138 0 137606 137606 32138 0 169744 0 1.00% 0 6362 6362 0 1.00% 0 6362 6362 0 1.00% 0 6362 6362 0 1.00% 0 6362 6362 0 1.00% 0 6362 6362 6362 1 6362 6362 1 6362 6362 1 6362 6362 1 6362 6362 1 6362 6362 6362 6362 6362 6362 6362 6362 6362 6362 6362 6362 6362 6362 6362 6362 6362 6362 6362 6362 6362 9054 Capital Expenditures Change in Sales Asset/Sales Ratio Growth Expenditures Replacement Expenditures Depreciation Calculation Beg PPE Depreciation Rate (1/life) PPE Beg Additions Depreciation or Disposals End 6362 Page 4 Subsidary Schedules Debt Beg Additions Reductions End 4924 0 0 4924 4924 0 0 4924 4924 0 0 4924 4924 0 0 4924 4924 0 0 4924 4924 0.00% 0 4924 0.00% 0 4924 0.00% 0 4924 0.00% 0 4924 0.00% 0 1,750.0 39,050.0 71,188.0 103,326.0 135,464.0 Operating Cash Flow NWC Debt Borrowings Sources 38,500.0 5,162.0 0.0 43,662.0 38,500.0 0.0 0.0 38,500.0 38,500.0 0.0 0.0 38,500.0 38,500.0 0.0 0.0 38,500.0 38,500.0 0.0 0.0 38,500.0 Dividends Capital Expenditures Debt Payments Uses 0.0 6,362.0 0.0 6,362.0 0.0 6,362.0 0.0 6,362.0 0.0 6,362.0 0.0 6,362.0 0.0 6,362.0 0.0 6,362.0 0.0 6,362.0 0.0 6,362.0 39,050.0 71,188.0 103,326.0 135,464.0 167,602.0 4924 Interest Calculation Beg Debt Level Interest Rate Cash Beg End 1750 Page 5 Assumptions John Brevard Supervalue Assumptions Author John Brevard Initial year Receivables Inventories Payables Other liabilities Cost of Revenue SGA Interest Rate Tax Rate Dividend Discount Rate Depreciation Life Capital Expenditures Growth Rate 2015 % of Sales % of Sales % of Sales % of Sales % of Sales % of Sales % of Debt % of EBT % of NI Years % of Chg.Sales 2016 2017 2018 Terminal 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.0% 1 Based on historical depreciation-to-fixed assets ratio 1.00% Based on historical fixed assets-to-sales ratio 0.0% 0.0% 0.0% 0.0% Non-Recurring % of Sales 0 Careful, non-recurring means non-recurring! Debt Growth Debt Reduction Round % Growth Rate % of O/S Balance Num of places 0 During five year forecast period, 3% after that. 0 0 Page 6 Instructions Instructions & Comments Below are historical financial statements and other pertinent data for Supervalue Inc. Please use these data in the following exercises. You may assume for the purposes of your calculations that "today" is the first day of the yearthat is, you do not have to worry about partial year calculations. Round your answers to the nearest 1,000 (consistent with previous reporting). A recent article in the Wall Street Journal reports that Supervalue (owner of grocery stores such as Albertsons and Jewel-Osco) is considering putting itself up for sale. Supervalue's earnings have taken a hit in the most recent quarter, falling 45%. Its share price has been falling as well, and management seems to be abandoning its previously optimistic outlook. Let's say you are the CEO of a competing grocery store chain and are considering the acquisition of Supervalue. You are confident that you will be able to achieve synergies, and you plan to operate the target as a subsidiary. You are now ready to calculate the value of Supervalue to determine if these synergies will be enough to make this a deal worth pursuing, and what price you should offer. Use these assumptions and the provided historical financial statements to answer the following questions. Please consider the following assumptions: Supervalue expects the expansion will increase revenues and operating expenses by 20% in 2016, 15% in 2017, 10% in 2018 and 3% thereafter. Beginning in 2018, Supervalue will settle into a permanent free cash flow growth rate of 3% per year. The levels of cash and interest-bearing debt are expected to remain constant through 2017, then they will grow at the same rate as free cash flows. Any liabilities labeled as "other" are non-interest-bearing. Supervalue's marginal cost of debt is 7.9%, and WACC is 11.0%. The marginal tax rate is 30%. Make any other assumptions you feel are necessary to perform the following tasks, and explain why you are making them. Required (A) 15 points. In Excel, create a pro forma income statement and balance sheet for Supervalue for the next five years by filling in your assumptions. (B) 15 points. Refer to your pro forma income statement from part (a) and the pro forma balance sheet provided. All numbers are in thousands of dollars. What are Supervalue's free cash flows for 2016 through 2020? You may provide your answer using the attached template. (c) 10 points. Based on your previous answers and using a DCF analysis, what is Supervalue's current (beginning 2016) enterprise value? Equity value? Use the EBITDA multiple method to calculate the terminal value. The appropriate EBITDA multiple is 7x. (D) 4 points. Given your calculations in part (c), what is the maximum price (equity value) you would be willing to pay for Supervalue? Briefly explain why you wouldn't be willing to pay more than this. Fee free to comment on Page 7 Instructions An income statement, balance sheet, subsidiary schedules and assumptions page have been provided for you. You will not be able to change the financial statements and schedules directly. They will be locked. You WILL have to modify the assumptions based on your judgment. That will change the income, assets, liabilities, and equity automatically. However,You WILL have to create the valuation sheet. A comment sheet is provided as the last tab to answer the text questions. Do not forget to enter your name in the name field in the assumptions sheet, it is labeled 'Your name goes here'. You may be tempted to try to reuse this spreadsheet for other assignments, not a good idea. Certainly you can use it for ideas. Of course, do not share ideas, data, etc. with others while working on this exam. Page 8 Students Comments John Brevard Student's Comments Page 9