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FINANCIAL MANAGEMENT MM5007

MIDTERM EXAM TAKE HOME


An individual Mid Semester Test for Finacial Management (MM5007)

Dennis Suryana (29117396)

Lecturer:
Maryat Nirwandi

CLASS OF CCE 58
MASTER OF BUSINESS ADMINISTRATION
INSTITUT TEKNOLOGI BANDUNG

2018
Menu Hidangan: (bisa diclick!)
No. 1 - Battlefield Manufacturing Company
No. 2 - Oracral Company
No. 3 - Gigi Hadid Invest Bonds in Zara
No. 4 - STARTUP x MBA Student
No. 5 - HIGHTECH Inc.
Data

1 Battlefield Manufacturing Company


Income Statement
for the Year Ended December 31, 2017

Sales revenue
Less: Cost of goods sold
Gross profits
Less: Operating expenses
Selling expense $ 650,000.00
General and administrative expenses $ 416,000.00
Depreciation expense $ 152,000.00
Total operating expense
Operating profits

Less: Interest expense


Net profits before taxes
Less: Taxes (rate 40%)
Net profits after taxes
Less: Preferred stock dividends
Earnings available for common stockholders
Earnings per share (EPS)

Battlefield Manufacturing Company


Balance Sheets
for the Year Ended December 31, 2017
December 31, 2017
Assets
Current assets
Cash $ 25,000.00
Accounts Receivable $ 805,556.00
Inventories $ 700,625.00
Total current assets $ 1,531,181.00
Gross fixed assets (at cost) $ 2,093,819.00
Less : Accumulated depreciation $ 500,000.00
Net fixed assets $ 1,593,819.00
Total assets $ 3,125,000.00

Liabilities & Stockholders’ Equity


Current liabilities
Accounts payable $ 230,000.00
Notes payable $ 311,000.00
Accruals $ 75,000.00
Total current liabilities $ 616,000.00
Long-term debt $ 1,165,250.00
Total liabilities $ 1,781,250.00
Stockholders’ equity
Preferred Stock (2,500 shares, $1.20 dividend) $ 50,000.00
Common stock (100,000 shares at $4 par) a) $ 400,000.00
Paid in capital in excess of par value $ 593,750.00
Retained earnings $ 300,000.00
Total stockholders’ equity $ 1,343,750.00
Total liabilities & stockholders’ equity $ 3,125,000.00
11.38
Dennis Suryana
29117396

pany
A. Actual 2017
Current Ratio 2.49
Year Ended December 31, 2017 Quick Ratio 1.35
Inventory turnover (times) 5.29
$ 5,075,000.00 Average collection period 58
$ 3,704,000.00 Total asset turnover (times) 1.62
$ 1,371,000.00 Debt ratio 57%
Time interest earned ratio 1.65
Gross profit margin 27.01%
Net profit margin 0.65%
Return On Asset (ROA) 1.06%
$ 1,218,000.00 Return On Equity (ROE) 2.55%
$ 153,000.00 Price/earnings (P/E) ratio 34.5

$ 93,000.00 Market/book (M/B) Ratio 0.8796


$ 60,000.00
$
$
24,000.00
36,000.00
B. Liquidity Cr

$ 3,000.00 Liquidity is healthy. Current Ratio 2,49 and Quick Ratio 1,35. Industry
$ 33,000.00 Activity Ratio
$ 0.33 Activity Ratio is below standard rate of Industry Average.
Debt Ratio
pany Debt Ratio is high, 57% compared to overall Industry Average 24,5%.
Profitability
Year Ended December 31, 2017 The Company ability to earn Gross Profit Margin of 27,1% is still slight
is slightly above Industry Average of 26%. Net Profit Margin 0,65% is h
December 31, 2016 Market
P/E Ratio and M/B ratio are bad. It is uncertain.

$ 24,100.00 Liquidity
$ 763,900.00 A good improvement in managing liquidity performance, despite of d
decrease, but has no significant effect.
$ 763,445.00
$ 1,551,445.00 Activity
$ 1,691,707.00 Inventory turnover decreased from year 2015 to 2016 but increased b
$ 348,000.00 152000 Debt
$ 1,343,707.00 -250112
Company’s Debt Ratio is constantly increased from 45,8% in 2015, 54
to Total Asset each year.
$ 2,895,152.00
Profitability
Company Gross Profit Margin is increased from 27,5% in 2015 to 28%
2017 and total budget of Operational, Interest, Taxes, and Preferred S
$ 400,500.00 -170500 Market
$ 370,000.00 -59000
Company market Ratio decreased from 2016 to 2017.
$ 100,902.00 -25902

$
$
871,402.00
700,000.00
C. 2017 is a not so great year for Battlefield Manufacturing company, ba
turnover, even though it’s still below the industry average. The compa
2017. 2015 to 2017 the company’s performance is till below Industry
$ 1,571,402.00

$
$
50,000.00
400,000.00
D. Battlefield Manufacturing Company
Cash Flow Statement
$ 593,750.00 Year of 2017
$ 280,000.00 20000 Operating Activity
$ 1,323,750.00 Net Profit
$ 2,895,152.00 Adjustment
Accumulated Depreciation
Increase (decrease) asset
Account Receivable
Inventories
Increase (decrease) liabilities
Account payable
Accrued taxes
Cash flow in operating activity
Investing Activity
Net PP&E
Cash flow in investing activity
Note to Bank
Owner Equity
Cash flow in financing activity

Increase (decrease) cash

Cash beginning period


Cash end period

E. EBIT
(1-Tax)
$ 153,000.00
0.6
DA $ 500,000.00
OCF $ 591,800.00

F. Balance
Assets
Sheet
2017
Cash $ 25,000.00
Accounts receivable $ 805,556.00
Inventory $ 700,625.00
Current assets $ 1,531,181.00
Gross PPE $ 2,093,819.00
Accumulated depreciation $ 500,000.00
Total Assets $ 3,125,000.00

Liabilities 2017
Accounts payable $ 230,000.00
Note payable $ 311,000.00
Accruals $ 75,000.00
Current liabilities $ 616,000.00
Long term debt $ 1,165,250.00
Preferred stock $ 50,000.00
Common stock $ 400,000.00
Paid in capital in excess of par v $ 593,750.00
Retained earnings $ 300,000.00
Total liabilities and Equity $ 3,125,000.00
Analysis
Industry
Actual 2016 Actual 2015 Average 2017 The Formula
1.8 1.7 1.5 current assets/current liabilities
0.9 1 1.2 current assets - inventory/current liabilities
5 5.2 10.2 COGS/inventory
55.8 50.7 46 AR/(sales/365)
1.5 1.5 2 Sales/total assets
54.3% 45.8% 24.5% Total liabilities/total assets
1.9 2.2 2.5 EBIT/Taxes
28% 27.5% 26% Gross profit/sales
1% 1.1% 1.2% earnings common stockholders/sales
1.5% 1.7% 2.4% earnings common stockholders/total assets
3.3% 3.1% 3.2% earnings common stockholders/common stock equity
38.7 33.5 43.3 market price per share of common stock/EPS
Market price per share of common stock/Book value per share
1.1 1 1.2 of common stock

Cross-sectional analysis

and Quick Ratio 1,35. Industry Average Rate is 1,5 and 1,2.

f Industry Average.

overall Industry Average 24,5%.

ofit Margin of 27,1% is still slightly above Industry Average of 26%. But it’s Net Profit Margin of 0,65% Profitability 27,1%
6%. Net Profit Margin 0,65% is half of Average of 1,2%. Too many liabilities.
uncertain.
Time-series Analysis

uidity performance, despite of decrease in the middle. 2016 (1,8) to 2017 (2,49) increased, however 2015 to 2016 slightly
.

ar 2015 to 2016 but increased back in 2017. Means the company improves.

creased from 45,8% in 2015, 54,3% in 2016, and 57% in 2017. It shows us that Company is increase it’s debt proportion

ased from 27,5% in 2015 to 28% in 2016, decreased back to 27,01%, resulted by the decreased of Gross Profit Margin in
Interest, Taxes, and Preferred Stock Dividends.

m 2016 to 2017.
eld Manufacturing company, based on the analysis. Best good result came from its ratio of inventory and total asset
he industry average. The company debt is creasing by year 2017 but the ability to make net profit is also decreased I
rformance is till below Industry average ratio.

ring Company
ement
17

$ 36,000.00

$ 152,000.00

$ (41,656.00)
$ 62,820.00

$ (170,500.00)
$ (25,902.00)
$ 12,762.00

$ (250,112.00)
$ (250,112.00)
$ (59,000.00)
$ 20,000.00
$ (39,000.00)

$ (276,350.00)

$ 25,000.00
$ (251,350.00)

EBIT x (1-Tax) + DA

Income Statement
2016
$ 24,100.00 Sales
$ 763,900.00 Cost of goods sold
$ 763,445.00 Gross profit
$ 1,551,445.00 SG&A
$ 1,691,707.00 EBITDA
$ 348,000.00 Depreciation
$ 2,895,152.00 EBIT
Interest expense
2016 Pre-tax earnings
$ 400,500.00 Taxes (40%)
$ 370,000.00 Net Income
$ 100,902.00
$ 871,402.00 Calculate the Free cash flow to firm
$ 700,000.00 Calculate the change in WC
$ 50,000.00 Capital Expenditure
$ 400,000.00 Net borrowings
$ 593,750.00
$ 280,000.00 FCFF
$ 2,895,152.00 FCFF
FCFF
2017
$ 5,075,000.00
$ 3,704,000.00
$ 1,371,000.00
$ 1,066,000.00
$ 305,000.00
$ 152,000.00
$ 153,000.00
$ 93,000.00
$ 60,000.00
$ 24,000.00
$ 36,000.00

149,336
402,112
406,250.0

-307,648.0 EBIT formula


-307,648.0 EBITDA formula
-307,648.0 Net income formula
Data

2$ May June July August September October


300,000.00 $ 400,000.00 $ 450,000.00 $ 400,000.00 $ 425,000.00 $ 400,000.00

(1) Collections from sales and payments to purchase inve


(2) Operating expenditures over the time p
(3) Cash budget covering the period of July through Dece
The cash budget should reflect the follo
(1) Beginning and ending monthly cash bala
(2) The month(s) in which there will be a cash sho
(3) The month(s) which there will be a cash su
(4) The cumulative cash shortage and/or cash su
Dennis Suryana
29117396

November December
$ 435,000.00 $ 400,000.00
A.
ales and payments to purchase inventory % May
erating expenditures over the time period Expected Gross Sales $ 300,000.00
ring the period of July through December During month 11.64% $ 34,920.00
e cash budget should reflect the following: 1st month 75%
inning and ending monthly cash balances 2nd month 13%
h(s) in which there will be a cash shortage Total cash collections $ 34,920.00
onth(s) which there will be a cash surplus
mulative cash shortage and/or cash surplus Purchases of Raw Material
Expected Gross Purchases 80% $ 320,000.00
Cash Payment 1 month lag

Disbursements:
Purchase of Raw Materials
Wages 6% $ 18,000.00
Lease payments 2% $ 6,000.00
Advertising Expense 3% $ 9,000.00
R&D Expenditures 12%
Prepayment Insurance
Other expenses
Taxes

Total Disbursement $ 33,000.00

Cash Budget
Beginning Balance
Collections
Disbursements
Net Cash Balance
Target Cash Balance
(Deficit)/Surplus
Cumulative Borrowing
Surplus
Cumulative Surplus

B. Very large debt loans might result bad financial situation. Company’s cash expense e
bankrupt. Solution for this is to accelerate the payment from receivables, try not to
Analysis
Oracral Company
Cash Budget July through December 2017

June July August September October November December


$ 400,000.00 $ 450,000.00 $ 400,000.00 $ 425,000.00 $ 400,000.00 $ 435,000.00 $ 400,000.00
$ 46,560.00 $ 52,380.00 $ 46,560.00 $ 49,470.00 $ 46,560.00 $ 50,634.00 $ 46,560.00
$ 225,000.00 $ 300,000.00 $ 337,500.00 $ 300,000.00 $ 318,750.00 $ 300,000.00 $ 326,250.00
$ 39,000.00 $ 52,000.00 $ 58,500.00 $ 52,000.00 $ 55,250.00 $ 52,000.00
$ 271,560.00 $ 391,380.00 $ 436,060.00 $ 407,970.00 $ 417,310.00 $ 405,884.00 $ 424,810.00

$ 360,000.00 $ 320,000.00 $ 340,000.00 $ 320,000.00 $ 348,000.00 $ 320,000.00 $ -


$ 320,000.00 $ 360,000.00 $ 320,000.00 $ 340,000.00 $ 320,000.00 $ 348,000.00 $ 320,000.00

$ 320,000.00 $ 360,000.00 $ 320,000.00 $ 340,000.00 $ 320,000.00 $ 348,000.00 $ 320,000.00


$ 24,000.00 $ 27,000.00 $ 24,000.00 $ 25,500.00 $ 24,000.00 $ 26,100.00 $ 24,000.00
$ 8,000.00 $ 9,000.00 $ 8,000.00 $ 8,500.00 $ 8,000.00 $ 8,700.00 $ 8,000.00
$ 12,000.00 $ 13,500.00 $ 12,000.00 $ 12,750.00 $ 12,000.00 $ 13,050.00 $ 12,000.00
$ 48,000.00 $ 51,000.00 $ 48,000.00
$ 24,000.00
$ 15,000.00 $ 20,000.00 $ 205,000.00 $ 30,000.00 $ 35,000.00 $ 40,000.00
$ 40,000.00 $ 45,000.00

$ 364,000.00 $ 424,500.00 $ 432,000.00 $ 682,750.00 $ 442,000.00 $ 430,850.00 $ 473,000.00

$ 15,000.00 $ 15,000.00 $ - $ - $ - $ -
$ 391,380.00 $ 436,060.00 $ 407,970.00 $ 417,310.00 $ 405,884.00 $ 424,810.00
$ 424,500.00 $ 432,000.00 $ 682,750.00 $ 442,000.00 $ 430,850.00 $ 473,000.00
$ (18,120.00) $ 19,060.00 $ (274,780.00) $ (24,690.00) $ (24,966.00) $ (48,190.00)
$ 15,000.00 $ - $ - $ - $ - $ -
$ (33,120.00) $ 19,060.00 $ (274,780.00) $ (24,690.00) $ (24,966.00) $ (48,190.00)
$ (33,120.00) $ (14,060.00) $ (288,840.00) $ (313,530.00) $ (338,496.00) $ (386,686.00)
$ 19,060.00

situation. Company’s cash expense exceeds incoming rate, if this continues, the company will go
ayment from receivables, try not to pay the bills too early. Increase sales to save the company.
Dennis Suryana
29117396
Data

3 A. If price of the common stock into which the bond is convertible rises to $30 per share after 5 years
and the issuer calls the bonds at $1,080, should Gigi let the bond be called away from her or should
she convert it into common stock?

B. For each of the following required returns, calculate the bond’s value, assuming annual interest.
Indicate whether the bond will sell at a discount, at a premium, or at par value. (1) Required return is
6%.
(2) Required return is 8%.
(3) Required return is 10%.

C. Repeat the calculations in part b, assuming that interest is paid semiannually and that the
semiannual required returns are one-half of those shown. Compare and discuss differences between
the bond values for each required return calculated here and in part b under the annual versus
semiannual payment assumptions.

D. Ifshould
Gigi strongly believes that inflation will rise by 1% during the next 6 months, what is the most she
pay for the bond, assuming annual interest?

E. Ifresult
the Zara Fashion bonds are down rated by Moody’s from Aa to A, and if such a rating change will
in an increase in the required return from 8% to 8.75%, what impact will this have on the bond
value, assuming annual interest?

F. Ifrequired
Gigi buys the bond today at its $1,000 par value and holds it for exactly 3 years, at which time the
return is 7%, how much of a gain or loss will she experience in the value of the bond
(ignoring interest already received and assuming annual interest)?

G. Rework part f, assuming that Gigi holds the bond for10 years and sells it when the required return is
7%. Compare your finding to that in part f, and comment on the bond’s maturity risk.

H. Assume that Gigi buys the bond at its current closing price of 98.380 and holds it until maturity.
What will her yield to maturity (YTM) be, assuming annual interest?

I. After evaluating all of the issues raised above, what recommendation would you give Gigi with regard
to her proposed investment in the Zara Fashion bonds?
Dennis Suryana
29117396
Analysis
r share after 5 years
ay from her or should A. Call price = Face value+ interest (Extra payment to the bond holder)
Call price = $1080
Note: Analysis calculation
back into excell so the ans
Par Value = $1000
Interest Income = call price – face value
= 1080 – 1000
= $80
g annual interest. after 5 years,
(1) Required return is Stock Price = $30 x 50 = $1500
Income from sale of stock = 1500 – 1000
= $500

nd that the
s differences between
he annual versus B. (1) Required return is 6%.
BO = I × PVIFA6%, 25yrs + M × PVIF6%, 25yrs
= $ 80 × 12.783 + $ 1000 × 0.233
= $ 1255.64
(2) Required return is 8%.
BO = I × PVIFA8%, 25yrs + M × PVIF 8%, 25yrs
= $ 80 × 10.675 + $ 1000 × 0.146
what is the most she = $ 1000
(3) Required return is 10%.
BO = I × PVIFA10%, 25yrs + M × PVIF 10%, 25yrs
= $ 80× 9.077 + 1000 × 0.092
= $ 818.16
a rating change will (1) Required return is 6%.
this have on the bond BO = I × PVIFA6%, 25yrs + M × PVIF6%, 25yrs
= $ 80 × 12.783 + $ 1000 × 0.233
= $ 1255.64
(2) Required return is 8%.
BO = I × PVIFA8%, 25yrs + M × PVIF 8%, 25yrs
rs, at which time the
ue of the bond C. BO = [I÷2] × PVIFA
= $ 806%/2, 25×2yrs
× 10.675
= [80÷2] × 25.730
+ M ××PVIF
+ $ 1000
+1000
= $ 1000 ×
0.146
0.228
6%/2, 25×2 yrs

= $ 1257.20
(3) Required return is 10%.
BO = I × PVIFA10%, 25yrs + M × PVIF 10%, 25yrs
BO = [I÷2] × PVIFA
= $ 8%/2, 25×2yrs
80× 9.077 + M× ×0.092
+ 1000 PVIF 8%/2, 25×2 yrs
the required return is = 40 × 21.482 + 1000
= $ 818.16 × 0.141
ty risk. = $ 1000.28

BO = [I÷2] × PVIFA 10%/2, 25×2yrs + M × PVIF 10%/2, 25×2 yrs


= 40 × 18.256 + 1000 × 0.087
= $ 817.24
it until maturity.

u give Gigi with regard


D. Coupon interest rate = 8%
Real rate = (8-5) % =3%
The inflatiom adjusted rate of return should be:
R = (1+0.03) × (1+0.06)-1 = 9.18%
BO = I × ((1+і) ⁿ - 1⁄і× (1+і) ⁿ) + M × (1÷ (1+і) ⁿ)
= $80 [(1+0,0918)25-1 / 0,0918× (1+.0918)25] + $ 1000 [1 ⁄ (1 + 0,0918)25]
= 718.8979 – 97.8891 + 111.2814
= $ 732.29
R = (1+0.03) × (1+0.06)-1 = 9.18%
BO = I × ((1+і) ⁿ - 1⁄і× (1+і) ⁿ) + M × (1÷ (1+і) ⁿ)
= $80 [(1+0,0918)25-1 / 0,0918× (1+.0918)25] + $ 1000 [1 ⁄ (1 + 0,0918)25]
= 718.8979 – 97.8891 + 111.2814
= $ 732.29

E. For 8%,
BO = $ I × PVIFA (8%, 25yrs) + M × PVIF (8%, 25yrs)
= $ 80 × 10.675 + $ 1000 × 0.146
= $ 1000
For 8.75%,
BO = I × *(1+і) ⁿ - 1⁄і× (1+і) ⁿ+ + M × *1÷ (1+і) ⁿ]
= $80 [(1+.0875)25-1 ⁄ 0.0875× (1+.0875)25+$ 1000[1⁄ (1 + 0,0875)25]
= $ 681.129

F. N = (25 – 3)yrs = 22yrs


BO = I ×PVIFA7%, 22yrs + M ×PVIF 7%, 22yrs
= $ 80 × 11.061 + $ 1000 × 0.226
= $ 1110.88
M = $ 1000
Gain = BO – M = $1110.88 – $ 1000
= $ 110.88

G. N = (25 – 10) yrs = 15yrs


BO = I × PVIFA7%, 15yrs + M × PVIF7%, 15yrs
= $ 80 × 9.108 + $ 1000 × 0.362 = $1.090,64
M = $ 1000
Gain = BO – M
= $ 1090.64 - $ 1000
= $ 90.64
Maturity period F G
Maturity risk 3 < 10
Lower Higher
The longer maturity, the more value of security will change response to a given change
interest rates.

H. YTM = (I + (F-P/ n)) / (F+P)/2


= [(80 + (1000 – 983.8)/25)]/ [(1000+ 983.8)/ 2]
= 8.13 %

I. Gigi Hadid might need to further reconsider about the interest rate risk,
might cause decrease in bond's value.
Note: Analysis calculation was done in paper, rewritten
back into excell so the answer will be under in one file.
Dennis Suryana
29117396
Data

4 YEAR (T) 2018


FREE CASH FLOW (FCF) $200,000
2019
$250,000
2020
$310,000
2021
$350,000
2022
$390,000

a. Estimate the value of STARTUP’ entire company (firm value/enterprise value) by


using the free cash flow valuation model.
b. Use your finding in part a, along with the data provided above, to find STARTUP
Industries’ common stock value.
c. If the firm plans to issue 200,000 shares of common stock, what it is estimated value
per share?

A.

B.

C.
a

Analysis
Debt market value 1,500,000 Assumption
Prefered stock 400,000 Cost of Capital
Terminal Value Growth Rate
Period 2018 2019 2020 2021
Discounted Cash Flow
Free Cash Flow $ 200,000.00 $ 250,000.00 $ 310,000.00 $ 350,000.00
Terminal Value
Total Flows $ 200,000.00 $ 250,000.00 $ 310,000.00 $ 350,000.00
1 2 3 4
PVIF 0.901 0.812 0.731 0.659
Present Value of Flow $ 180,180.18 $ 202,905.61 $ 226,669.33 $ 230,555.84

Enterprise Value $ 4,051,624.46


Less: current outstanding debt $ 1,500,000.00
Equity Value $ 2,551,624.46
Current share outstanding $ 400,000.00
Value per share $ 6.38

Equity Value $ 2,551,624.46


Current share outstanding $ 200,000.00
Value per share $ 12.76
tion
11.00%
3.00%
2022

$ 390,000.00
$ 5,021,250.00
$ 5,411,250.00
5
0.593
$ 3,211,313.50
Dennis Suryana
29117396
Data
5 HighTech, Inc
Income Statement Historical & Projection 2018-2022
(000s) Historical Historical Projected
INCOME STATEMENT 2016 2017 2018

Revenue 74,452 83,492 93,511


Cost of Goods Sold Gross Profit Operating Expenses (SG&A) 64,440 72,524 81,081
Operating Income (EBIT) 10,012 10,968 12,430
Interest Expense 6,389 6,545 7,677
Pretax Income Income Tax Expense Tax Rate 3,623 4,423 4,752
Net Income 1,600 1,600
2,023 2,823
Operating Income 708 988
(EBIT) NM NM 35.00%
Depreciation Amortization EBITDA 1,315 1,835
3,623 4,423 4,752
662 745 833
0 0 0
4,285 5,168 5,585

HighTech, Inc
Balance Sheet Historical & Projection 2018-2022
BALANCE SHEET 2016 2017 2018

Current Assets
Cash 6,773 7,000
Accounts Receivable 7,750 8,852 9,824
Inventory 4,800 5,700 6,206
Prepaid Expenses 456 1,849 1,849
Total Current Assets 19,779 23,401
Fixed Assets
PP&E, Net of Accum. 5,457 5,466 5,533
Depreciation
TOTAL ASSETS 25,236 28,867
Current Liabilities
Accounts Payable 5,665 6,656 7,285
Line of Credit 0 0
Current Maturities of Long 0 0 0
Term Debt
Total Current Liabilities 5,665 6,656
Long Term Liabilities
Long Term Debt, Net of 10,000 10,000 10,000
Current Maturities
TOTAL LIABILITIES 15,665 16,656
Common Stock 15 15 15
Additional Paid In Capital 5,000 5,000 5,000
Retained Earnings 4,556 7,196
TOTAL EQUITY 9,571 12,211
TOTAL LIABILITIES & 25,236 28,867
EQUITY
Check 0 0
BALANCE SHEET
ASSUMPTIONS
AR Days 38 39 38
Inventory Days 27 29 28
AP Days 32 33 33

Capital Market and Financial Information


On or Around December 31, 2017
3 - month
6 - month
Current Yields on Government Bond 1 - year
5 - year
10 - year

Geometric mean
Historical Equity Risk Premium
Arithmetic mean

Coupon
Current Yield on Publicly Traded HighTech Debt Year to Maturity
Current Price

HighTech Beta Q3/2017 Beta

Target Market Capital Structure Debt = 30%

Terminal growth rate g = 3%

a. Use the free cash flow valuation model to estimate HIGHTECH’s common stock value per share. The firm has 1,00
outstanding
b. Judging on the basis of your finding in part a and the stock’s offering price, should you buy the stock?
c. Upon further analysis, you find that the growth rate in FCF beyond 2022 will be 2% rather than 3%. What effect w
responses in part a and b?
nnis Suryana
29117396
Analysis

2018-2022
A. Coupon
Face Value
Projected Projected Projected Projected Current Price
2019 2020 2021 2022 n
tax
104,732 117,300 131,376 147,141 Rf (5 years)
90,811 101,709 113,914 127,583 Rm (geometric)
13,921 15,592 17,463 19,558 beta
8,599 9,631 10,786 12,081
5,322 5,961 6,676 7,478 COST OF DEBT
Kd before tax =

Kd before tax =
35.00% 35.00% 35.00% 35.00% Kd after tax =

5,322 5,961 6,676 7,478 COST OF EQUITY


933 1,045 1,170 1,311 Ke =
0 0 0 0
6,255 7,006 7,847 8,788
WEIGHT OF DEBT
WEIGHT OF EQUITY
18-2022
2019 2020 2021 2022 WACC

11,003 12,323 13,802 15,458 Operating Income (EBIT)


6,951 7,785 8,719 9,765 OCF
1,849 1,849 1,849 1,849 Depreciation
Delta AR
Delta Inv
5,575 5,580 5,534 5,424 Delta AP
Change WC
Capital Expenditure
FCF
8,159 9,138 10,234 11,463

0 0 0 0 Assumption:
Cost of Capital
Terminal Value Growth Rate

10,000 10,000 10,000 10,000 Discounted Cash Flow


Free Cash Flow
Terminal Value
15 15 15 15 Total Flow
5,000 5,000 5,000 5,000 PVIF
Present Value of Flow

Enterprise Value
Less: current outstanding debt
Equity Value
Current Share Outstanding
Equity Value per Share in (000s)
38 38 38 38 Equity Value per Share
28 28 28 28
33 33 33 33
B. WACC shows 9.76% whlist the present value is 60.05 which
price 35.50. Buy is a healthy option.
ation
7
3 - month 3.59%
C. Assumption:
6 - month 3.59% Cost of Capital
1 - year 3.59% Terminal Value Growth Rate
5 - year 4.88%
10 - year 5.39% Discounted Cash Flow
Free Cash Flow
Geometric mean 5.90% Terminal Value
Arithmetic mean 7.50% Total Flows
PVIF
Coupon 6.75% Present Value of Flow
Year to Maturity 20 years
Current Price 95.6 Enterprise Value
Less: current outstanding debt
Q3/2017 Beta 1.2 Equity Value
Current Share Outstanding
Debt = 30% Equity = 70% Equity Value per Share in (000s)
Equity Value per Share
g = 3%
After the growth rate, the effect is 2%. Buying still a healthy opti
potential.
er share. The firm has 1,000,000 shares of common stock

buy the stock?


her than 3%. What effect would this finding have on your
Analysis
6.75%
100
95.6
20
35%
4.88%
5.90%
1.2

C + (F-P)/n
(F+P)/2
7.13%
4.63%

Rf + (Rm -Rf) Beta D


11.96% E

30%
70%

Wd x Kd + We x Ke
9.76%

2018 2019 2020 2021 2022


4,752 5,322 5,961 6,676 7,478
3088.8 3459.3 3874.65 4339.4 4860.7
833 933 1,045 1,170 1,311
972 1179 1320 1479 1656
506 745 834 934 1046
629 874 979 1096 1229
849 1,050 1,175 1,317 1,473
-766 -891 -1040 -1216 -1421
3,838.80 4,233.30 4,784.65 5,408.40 6,119.70

2018 2019 2020 2021 2022

9.76%
3.00%

3,838.80 4,233.30 4,784.65 5,408.40 6,119.70


93,220.18
3,838.80 4,233.30 4,784.65 5,408.40 99,339.88
0.91 0.83 0.76 0.69 0.63
3,497.39 3,513.80 3,618.24 3,726.19 62,354.67

76,710.30
16,656.00
60,054.30
1,000,000
0.0601
$ 60.05

hlist the present value is 60.05 which is higher than the current market
ealthy option.

2018 2019 2020 2021 2022

9.76%
2.00%

3,838.80 4,233.30 4,784.65 5,408.40 6,119.70


80,421.49
3,838.80 4,233.30 4,784.65 5,408.40 86,541.19
0.91 0.83 0.76 0.69 0.63
3,497.39 3,513.80 3,618.24 3,726.19 54,321.06

68,676.69
16,656.00
52,020.69
1,000,000
0.0520
$ 52.02

e effect is 2%. Buying still a healthy option becase it has a good growth

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