Bauer Industries

0
(Millions)

Answer

Revenue
COGS(Manufacturing Expense)
SGA(Marketing Expenses)
Deperciation
Operating Income
Tax
NOPAT
NOPAT+ Deperciation
Salvage
Change in Working Capital
Initial Investment
Free Cash Flow

Rf(Risk Free Rate)

Rm-Rf(Market Premium)
B
Ke
Ke(Cost to Capital)(%)
Answer

WACC(1:1 ratio of Ke& kd)(%)

Answer
Answer
Answer

NPV
IRR
MIRR

$
$

(Millions)
$ 100.00
$ 35.00
$ 10.00
$ 15.00
$ 40.00
$ 14.00
$ 26.00
$ 41.00
$
$
5.00

150.00
-150.00 $

36.00

3%
8%
1.30
Rf+B(Rm-Rf)
13.40%
9.63%
$

79.55
20.55%
14.40%

Recent dividend, D0
Growth in dividends
Discount rate
D0

$0.40
25.0%
13.40%
$0.40

D1

$0.50

D2

$0.63

D3

$0.78

D4

$0.98
Present value of the stock during the growing period
$2.05

Answer
Answer

No, the Stock is not rightly Valued

Answer

Feasibility

Yes, as the NPV is positive and with spread of 10.93 wit

0
(Millions)

1
(Millions)

Revenue
COGS(Manufacturing Expense)
SGA(Marketing Expenses)
Deperciation
Operating Income
Tax
NOPAT
NOPAT+ Deperciation
Salvage
Change in Working Capital
Initial Investment
Free Cash Flow

$
$

150.00
-150.00 $

Answer

NPV(New)

38.15

Answer

Difference in NPV

41.40

$ -15.00

15.00

NPV Profile
Rate(%)
0%
2%
4%
6%
8%
9.63%
10%
12%
15%
20%
20.55%
22%

NPV old ($mn)

$ 222.00
$ 183.22
$ 150.10
$ 121.66
$ 97.12
$ 79.55
$ 75.83
$ 57.27
$ 33.64
$
2.87
$
0.01
$ -7.12

250.00
200.00
150.00
100.00

50.00
0.00
-50.00

Bauer Industries
2
(Millions)
$ 100.00
$ 35.00
$ 10.00
$ 15.00
$ 40.00
$ 14.00
$ 26.00
$ 41.00
$
$
5.00
$

3
(Millions)
(Millions)
$
100.00 $
$
35.00 $
$
10.00 $
$
15.00 $
$
40.00 $
$
14.00 $
$
26.00 $
$
41.00 $
$
$
$
5.00 $

36.00 $

36.00 $

Kd
Tax
KdCost of Debt)
Kd(%)

100.00
35.00
10.00
15.00
40.00
14.00
26.00
41.00
5.00

(Millions)
$ 100.00
$ 35.00
$ 10.00
$ 15.00
$ 40.00
$ 14.00
$ 26.00
$ 41.00
$
$
5.00

(Millions)
$ 100.00
$ 35.00
$ 10.00
$ 15.00
$ 40.00
$ 14.00
$ 26.00
$ 41.00
$
$
5.00

(Millions)
$ 100.00
$ 35.00
$ 10.00
$ 15.00
$ 40.00
$ 14.00
$ 26.00
$ 41.00
$
$
5.00

(Millions)
$ 100.00
$ 35.00
$ 10.00
$ 15.00
$ 40.00
$ 14.00
$ 26.00
$ 41.00
$
$
5.00

36.00 $

36.00 $

36.00 $

Kd*(1-tax)
35%
9%
5.85%

11%
Case 2,, Stable growth
Growth stagnates D5 onwards
Using Gordon's model
$45.17
P4
Present value of stock during the stable period

the growing period

$27.31
P0

Final value of stock

$29.37

36.00 $

36.00

the NPV is positive and with spread of 10.93 with respect to IRR and spread of 4.77 with respect to MIRR we will go ahead with the project

2
3
(Millions) (Millions)
(Millions)
$
100.00 $
$
35.00 $
$
10.00 $
$ -15.00 $
15.00 $
$
40.00 $
$
14.00 $
$
26.00 $
$ 15.00 $
41.00 $
$
$
$
5.00 $
$

36.00 $

4
100.00
35.00
10.00
15.00
40.00
14.00
26.00
41.00
5.00

5
(Millions)
$ 100.00
$ 35.00
$ 10.00
$ 15.00
$ 40.00
$ 14.00
$ 26.00
$ 41.00
$
$
5.00

36.00 $

36.00 $

NPV Profile

Rate(%)
NPV old ($mn)

WACC(%)

6
(Millions)
$ 100.00
$ 35.00
$ 10.00
$ 15.00
$ 40.00
$ 14.00
$ 26.00
$ 41.00
$
$
5.00

7
(Millions)
$ 100.00
$ 35.00
$ 10.00
$ 15.00
$ 40.00
$ 14.00
$ 26.00
$ 41.00
$
$
5.00

36.00 $

8
(Millions)
$ 100.00
$ 35.00
$ 10.00
$ 15.00
$ 40.00
$ 14.00
$ 26.00
$ 41.00
$
$
5.00

36.00 $

36.00

9
(Millions)
$ 100.00
$ 35.00
$ 10.00
$ 15.00
$ 40.00
$ 14.00
$ 26.00
$ 41.00
$
$
5.00
$

10
(Millions)
$ 100.00
$ 35.00
$ 10.00
$ 15.00
$ 40.00
$ 14.00
$ 26.00
$ 41.00
$ 12.00
$
5.00

36.00 $

48.00

MIRR we will go ahead with the project

9
(Millions)
$ 100.00
$ 35.00
$ 10.00
$ 15.00
$ 40.00
$ 14.00
$ 26.00
$ 41.00
$
$
5.00
$

10
(Millions)
$ 100.00
$ 35.00
$ 10.00
$ 15.00
$ 40.00
$ 14.00
$ 26.00
$ 41.00
$ 12.00
$
5.00

36.00 $

11
(Millions)
$ 100.00
$ 35.00
$ 10.00
$
$
$
$
$
$

48.00 $

55.00
19.25
35.75
35.75
5.00

12
(Millions)
$ 100.00
$ 35.00
$ 10.00
$
$
$
$
$
$

55.00
19.25
35.75
35.75
5.00

30.75 $

30.75