GIVEN DATA

Balance Sheet
Assets

Liabilities
2002
3.12
15.08
20.75
38.95

Cash & Securities

Other current assets
Net fixed assets
Total

2003
3.60 Current Liabilities
16.93 Equity
23.38
43.91 Total

2002
2.90
36.05

2003
3.20
40.71

38.95

43.91

Cash flow
Depreciation
Pretax profits
Tax
Aftertax profits
Dividends
Retained profits

Forecasted profits and dividends (figures in $ millions)

2004
2005
2006
2007
10.47
11.87
7.74
8.40
2.40
3.10
3.12
3.17
8.08
8.77
4.62
5.23
2.83
3.07
1.62
1.83
5.25
5.70
3.00
3.40
2.00
2.00
2.50
2.50
3.25
3.70
0.50
0.90

2008
9.95
3.26
6.69
2.34
4.35
2.50
1.85

Gross investment in fixed assets

Investments in net working capital
Total

Forecasted investment expenditures (figures in $ millions)

2004
2005
2006
2007
4.26
10.50
3.34
3.65
1.39
0.60
0.28
0.42
5.65
11.10
3.62
4.07

2008
4.18
0.93
5.11

Cost of Capital
Current shares outstanding
Shares After equity addition

10%
0.2 mn
0.29 mn

0.09

Expectations for 2011

ROE
DPR
Growth rate

12%
40%
ROE*(1DPR)

7.20%

GIVEN DATA

2009
12.67
3.44
9.23
3.23
6.00
2.50
3.50

2010
15.38
3.68
11.69
4.09
7.60
3.00
4.60

2009
5.37
1.57
6.94

2010
6.28
2.00
8.28

18.30

Question 1:

Since company is debt free, interests costs is zero. Hence EBIT+PBT

2004
EBIT=PBT
Less :Tax
Depreciation
Less :Capex change
Less: Change in WC
FCFF
Dividends
Dividend Payout Ratio
NPV of explicit period
Present value of free
cash flows in 2003 for
forecasted cash flows
from 2004 to 2010=

8.08
(2.83)
2.40
(4.26)
(1.39)
2.00
2.00
0.38
$8.01

Free cash flow calcultion (figures in $ millions)

2005
2006
2007
2008
8.77
4.62
5.23
6.69
(3.07)
(1.62)
(1.83)
(2.34)
3.10
3.12
3.17
3.26
(10.50)
(3.34)
(3.65)
(4.18)
(0.60)
(0.28)
(0.42)
(0.93)
(2.30)
2.50
2.50
2.50
2.00
2.50
2.50
2.50
0.35
0.83
0.74
0.57
$7.68

$8.01 millions
$66.95

2009
9.23
(3.23)
3.44
(5.37)
(1.57)
2.50
2.50
0.42

58.94

Question 3:
Book Value calculations
2004
Start Equity book value
Investment
Less:Depreciation
End Equity book value
Calculations for 2011:
Net Profit
Dividend

40.71
5.65
(2.40)
43.96

$7.60 mn
$3.04 mn

2005
43.96
11.10
(3.10)
51.96

figures in mn
2006
2007
51.96
3.62
(3.12)
52.46

67.11
$3.80

52.46
4.07
(3.17)
53.36

2008
53.36
5.11
(3.26)
55.21

2009
55.21
6.94
(3.44)
58.71
$8.14
8.0532

67.87
$3.26

Using Constant growth DCF Formula

Growth Rate
7.20%
PV at horizon in 2010
$108.5 mn
PV at 2003
$63.7 mn
Share price expected
$318.5

6%
$94.97
$ 56.74
$ 283.71

2005 If company do not Declare Dividend

$9.79
$58.97
$68.75
322.25 342.2661

No of
share to be 13343.6773
Assuming no growth post 2010:
PV at horizon in 2010
PV at 2003
Share price expected

876.511

$76.0 mn
$47.0 mn
$235.0

So share price should range from $235 to $319 as per DCF valuation
Question 2:
Comparable Analysis conclusions from Molly Sports' ratios:
Molly Sports Ratios
George Sports (in mn except share price)
2003
Ratio Name
Ratio Value
2010 Valuation Valuation Share Price
Market to Book Value
50%
$94.97
$56.74
$283.71
Price to Earnings
12
$91.20
$54.81
$274.05
Dividend Yield
3%
$101.30
$59.99
$299.95

Conservative

So share price should range from $274 to $299 as per comparable analysis

Question 4:
If $4.3 mn is raised with issue of shares in 2005, then book value will change in 2005:
Book Value calculations

Start Equity book value

Investment
Less:Depreciation
End Equity book value

2004
40.71
5.65
-2.4
43.96

Calculations for 2011:

Net Profit
Dividend

2005
43.96
11.1
-3.1
56.26

8.1 mn
3.2 mn

Using Constant growth DCF Formula

PV at horizon in 2010
PV at 2003
Share price expected
Assuming no growth post 2010:
PV at horizon in 2010
PV at 2003

$115.90 mn
$67.48 mn
$232.70

$32.45 mn
$24.66 mn

figures in mn
2006
2007
56.26
56.76
3.62
4.07
-3.12
-3.17
56.76
57.66

2008
57.66
5.11
-3.26
59.51

2009
59.51
6.94
-3.44
63.01

Share price expected

$85.03

So share price should range from $73 to $264 as per DCF valuation. So dilution is seen.

Question

Given the range of

valuations done in Ques
3 above and assuming
that Reeby sports needs
to go for an IPO of 4.3
mn at the end of 2005,
How many shares
should be issued and at
what price considering
all the techniques of
valuations?

The 283.79
include the
expansion plan
so it does not
matter where
the Financing
comes from, So
conceptually
there will be no
change in value
of Share price.

Mathematically
we have to
prove $ 322.25
at 2005 shud be
equal to $283.79

With Dividend

2003
$283.68

2004
10

2005
332.25

Without Dividend

2003
$283.64

2004
0

2005
343.2

2010
11.69
(4.09)
3.68
(6.28)
(2.00)
3.00
3.00
0.39

2010

3.22

114.9

2010
58.71
8.28
(3.68)
63.31

$0.06
4.0266

FCFF=FCFE since there is zero debt

Since dividend is $3.04 mn and min FCFE is equal to max amount of dividend that
can be paid
SO FCFE= $3.04 mn

do not Declare Dividend

($55.69)
$4.43
$85.23
96.644 51.7439
483.22 258.7195

$55.69

Conservative

2010
63.01
8.28
-3.68
67.61

of dividend that

203.55

Cake
Cedar
Cid
Coat
Cure
Cape

$28.50
$21.20
$39.00
$34.20
$33.50
$39.00

$28.05
$22.00
$38.50
$34.50
$34.00

Fast
Feat
Fist
Foam
Fume
F1

($0.45)
$0.80
($0.50)
$0.30
$0.50
($39.00)

Daze
Dell
Dixie
Dot
Dune

$28.00
$20.50
$39.50
$34.50
$34.00

$0.05
$1.50
($1.00)
$0.00
$0.00

$ 283.71 is the Valuation at 31st Dec 2003, we Need to find for 31st Dec for 2005 and FInd IPO P

If the company decide not to pay any dividends to the existing share holder at the end of 2004 a
company valuation at the end of 2005 and per share valuation for the existing shareholders at th
OR Company declare dividend or not does its valuation changes or not???

r 31st Dec for 2005 and FInd IPO Price.

share holder at the end of 2004 and 2005 . WIll it affect overall
for the existing shareholders at the end of 2005.

es or not???