XYZ's balance sheet (in million dollars) at the end of year 0 (when acquisition is completed)...

 

 

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XYZ's balance sheet (in million dollars) at the end of year 0 (when acquisition is completed) will be: Assets Liabilities and equity NWC Revolver paying 7.5% interest Net fixed assets Bank loan paying 8.0% interest Other assets Subordinated debt paying 9.5% interest Total debt Equity Total liabilities and equity Total assets EBIT Taxes @ 34% + Depreciation - Ch.NWC Waldo expects to sell XYZ for an EV/EBITDA multiple of 8 at the end of year 5. The company is not traded but a similar company is: It has no debt and an estimated cost of equity of 13.5%. Waldo has forecasted the following free cash flows (in millions of dollars) over the next 5 years: - 60.0 121.0 26.0 - CAPX = FCF 207.0 Year 0 Year 1 22.7 7.7 21.5 -12.3 10.7 38.1 Year 2 29.8 10.1 13.5 1.9 10.1 21.2 Year 3 37.1 12.6 11.5 4.2 10.4 21.4 Year 4 40.1 13.6 12.1 5.2 11.5 21.9 13.0 80.0 70.0 163.0 44.0 207.0 Year 5 42.1 14.3 12.7 6.1 13.1 21.3 Produce a debt repayment model for the company above over the next 5 years, assuming that (i) the bank loan needs to be repaid in four installments of $20m at the end of year 2, 3, 4, and 5; (ii) the rest of the debt does not need to be repaid over the next 5 years; and (iii) no payment (dividend or share repurchases) can be made to shareholders over the next 5 years. 1 2 EBIT 3 - Taxes @ 34% + Depreciation - Ch.NWC 4 5 6 - CAPX FCF 7 8 9 Debt Repayment model 10 Revolver @ 7.5% 11 Interest payment 12 Tax shield 13 Repayment 14 Year end 15 Bank loan @ 8% 16 Interest payment 17 Tax shield 18 Repayment 19 Year end 20 Sub @ 9.5% 21 Interest payment 22 Tax shield 23 Repayment 24 Year end Year 0 25 26 Cash flow available for debt repayments 27 28 B Year 1 C 22.7 7.7 21.5 -12.3 10.7 38.1 13 80 70 Year 2 D 29.8 10.1 13.5 1.9 10.1 21.2 Year 3 E 37.1 12.6 11.5 4.2 10.4 21.4 Year 4 F 40.1 13.6 12.1 5.2 11.5 21.9 Year 5 G 42.1 14.3 12.7 6.1 13.1 21.3 Question 3 Building on your answers in Question 2: A. Produce a valuation with CCF for the company. State clearly any assumptions you need to make B. Compute the IRR for equity investors 1234 EBIT - Taxes @ 34% + Depreciation 5 - Ch.NWC 6 - CAPX FCF A 7 8 9 CCF 10 EXIT EV (8x EBITDA) 11 Discount rate: A 12 PV(CCF; TA) 13 PV (TV; TA) 14 EV 15 16 ENTRY Equity 17 EXIT Debt 18 EXIT EV 19 EXIT Equity 20 Cash multiple 21 IRR 22 23 Year 0 B 44 ADINE Year 1 C 22.7 7.7 21.5 -12.3 10.7 38.1 Year 2 D 29.8 10.1 13.5 1.9 10.1 21.2 Year 3 E 37.1 12.6 11.5 4.2 10.4 21.4 Year 4 F 40.1 13.6 12.1 5.2 11.5 21.9 G Year 5 42.1 14.3 12.7 6.1 13.1 21.3 H XYZ's balance sheet (in million dollars) at the end of year 0 (when acquisition is completed) will be: Assets Liabilities and equity NWC Revolver paying 7.5% interest Net fixed assets Bank loan paying 8.0% interest Other assets Subordinated debt paying 9.5% interest Total debt Equity Total liabilities and equity Total assets EBIT Taxes @ 34% + Depreciation - Ch.NWC Waldo expects to sell XYZ for an EV/EBITDA multiple of 8 at the end of year 5. The company is not traded but a similar company is: It has no debt and an estimated cost of equity of 13.5%. Waldo has forecasted the following free cash flows (in millions of dollars) over the next 5 years: - 60.0 121.0 26.0 - CAPX = FCF 207.0 Year 0 Year 1 22.7 7.7 21.5 -12.3 10.7 38.1 Year 2 29.8 10.1 13.5 1.9 10.1 21.2 Year 3 37.1 12.6 11.5 4.2 10.4 21.4 Year 4 40.1 13.6 12.1 5.2 11.5 21.9 13.0 80.0 70.0 163.0 44.0 207.0 Year 5 42.1 14.3 12.7 6.1 13.1 21.3 Produce a debt repayment model for the company above over the next 5 years, assuming that (i) the bank loan needs to be repaid in four installments of $20m at the end of year 2, 3, 4, and 5; (ii) the rest of the debt does not need to be repaid over the next 5 years; and (iii) no payment (dividend or share repurchases) can be made to shareholders over the next 5 years. 1 2 EBIT 3 - Taxes @ 34% + Depreciation - Ch.NWC 4 5 6 - CAPX FCF 7 8 9 Debt Repayment model 10 Revolver @ 7.5% 11 Interest payment 12 Tax shield 13 Repayment 14 Year end 15 Bank loan @ 8% 16 Interest payment 17 Tax shield 18 Repayment 19 Year end 20 Sub @ 9.5% 21 Interest payment 22 Tax shield 23 Repayment 24 Year end Year 0 25 26 Cash flow available for debt repayments 27 28 B Year 1 C 22.7 7.7 21.5 -12.3 10.7 38.1 13 80 70 Year 2 D 29.8 10.1 13.5 1.9 10.1 21.2 Year 3 E 37.1 12.6 11.5 4.2 10.4 21.4 Year 4 F 40.1 13.6 12.1 5.2 11.5 21.9 Year 5 G 42.1 14.3 12.7 6.1 13.1 21.3 Question 3 Building on your answers in Question 2: A. Produce a valuation with CCF for the company. State clearly any assumptions you need to make B. Compute the IRR for equity investors 1234 EBIT - Taxes @ 34% + Depreciation 5 - Ch.NWC 6 - CAPX FCF A 7 8 9 CCF 10 EXIT EV (8x EBITDA) 11 Discount rate: A 12 PV(CCF; TA) 13 PV (TV; TA) 14 EV 15 16 ENTRY Equity 17 EXIT Debt 18 EXIT EV 19 EXIT Equity 20 Cash multiple 21 IRR 22 23 Year 0 B 44 ADINE Year 1 C 22.7 7.7 21.5 -12.3 10.7 38.1 Year 2 D 29.8 10.1 13.5 1.9 10.1 21.2 Year 3 E 37.1 12.6 11.5 4.2 10.4 21.4 Year 4 F 40.1 13.6 12.1 5.2 11.5 21.9 G Year 5 42.1 14.3 12.7 6.1 13.1 21.3 H