Ozyegin University

Faculty of Business
FIN 419 Business Valuation
Fall 2018

Case
“Teuer Furniture”

The case can be downloaded from HBS Publishing. This case aims you to understand how
to decide on an acquisition/investment. You are supposed to make DCF valuation.

The answers to this problem set will be provided as a group. Every group is also supposed
to prepare a presentation related to the answers to the questions below. Please do not
present question-by-question but instead, please prepare a structured presentation in the
light of your answers to the below questions. The presentations will take place on
December 21st , Friday in the class. Each presentation will take 25 minutes including
Q&As. Every group member should present. The answers and presentations are due
on December 18, 2018 and your excel sheets and presentations should be uploaded to
LMS.

Review the case and provide a written answer to the following questions:

1. Construct the pro forma financials. To value Teuer Furniture, the first step is to construct
a pro forma income statement and pro forma balance sheet. Use the assumptions and data
from the case. Templates have been provided for you. As a check that your numbers are
correct, verify that the balance sheet balances.

2. Value the firm using the discounted cash flow method. Value Teuer Furniture by
constructing the cash flow from assets for the next six years (2013 to 2018). Your value
should not include the 2012 cash flows. Initially, assume that the long-term growth rate of
Teuer Furniture’s cash flows is 3.5% and that the firm’s cost of capital is 12.1%. What is
the value of Teuer Furniture on a per-share basis?

3. Evaluate the key assumptions. The value of Teuer that you calculated is a function of
the assumptions made by you and Teuer’s finance team. Your base case valuation should
be built upon the forecasts of Jerabek’s team. Discounted cash flow analysis depends upon
a large number of assumptions. You can change the assumptions where you think it
appropriate. If you do make changes, be prepared to explain and defend your
assumptions—especially the ones that are crucial.

4. Evaluate and defend the internal and external validity of the firm’s forecasts and the
valuation model