You are considering investing in a firm called BioMor (a young medical devices firm) and would like to know its valuation. You estimate

that revenues for 2021 will be $78 million. You believe that the company will experience fast growth of 10% per year for the following 5 years (2022-2026).

Subsequently, the growth rate would slow down by 2% every year (i.e., 8%, 6%, 4%, 2%) until it reaches the terminal growth rate of 2% starting 2030

(you assume that the firm will grow forever at the rate of 2% after 2030). BioMor went public two years ago and has 20,000,000 shares outstanding.

As a young company, it has debt of $1,000,000 and $9,000,000 of cash reserves left from its IPO. You estimate the cost of capital of BioMor to be 14.8%,

and the relevant tax rate is 33%. Variable costs for BioMor are only 46% of revenues, but BioMor heavily invests in new equipment and continues

to upgrade its capacity. Therefore, CapEx is estimated at 22% of revenues, and depreciation expenses are expected to be 14% of revenues.

Net working capital is 6% of revenues. Changes in net working capital for 2020 have already been incurred, and changes for subsequent years are

established ahead of the revenues (i.e., the change in net working capital for 2021 is 6% of the expected change in revenues from 2021 to 2022).

a). What is your estimate of BioMor's Enterprise Value as of the beginning of 2021?

b). According to your valuation analysis, what should be BioMor's share price? If its current stock price is $9, should you invest based on your valuation?

Answer rating: 100% (QA)

To estimate BioMors Enterprise Value EV as of the beginning of 2021 we need to calculate the present value of its future cash flows Heres how we can do it step by step Step 1 Calculate Free Cash Flows ... View the full answer