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Cane Distribution, Inc., is a distribution company incorporated on 31st December 2000 with initial capital
infusions of $224000 of debt and $336000 of common stock. This initial capital was immediately invested in
fixed capital of $500000 and working capital of $60000. Working capital initially consist solely of inventory.
The fixed capital consist of non depreciable property of $50000 and depreciable property of $450000. The
latter has 10 years useful life with no salvage value. Tables below provide Cane’s financial information for the
three years following incorporation.
Notes:
Cash paid for interest -15.68 -17.25 -18.97
Cash paid for taxes -41.80 -45.98 -50.57
Vishal Noronha needs to prepare a valuation of Sindhuh Enterprises.Noronha has assembled the following
information for his analysis. It is now the first day of 2003.
What is the per share value of Sindhuh Enterprises on the first day of 2003?
Example 3: Two stage FCFE model with Declining Sales Growth Rates
Medina works has a competitive advantage that will probably deteriorate over time. Flavio Torino expects this
deterioration to be reflected in declining sales growth rates as well as declining profit margins. To value the
company, Torino has accumulated the following information:
Current sales are $600 milion. Over the next six years, the annual sales growth rate and the net profit
margin are projected to be as follows:
Year 1 2 3 4 5 6
Sales Growth 20% 16% 12% 10% 8% 7%
Net Profit 14% 13% 12% 11% 10.50% 10%
Beginning in Year 6, the 7% sales growth rate and 10% net profit margin should persist indefinitely.
Capital expenditure (net of depreciation) in the amount of 60% of the sales increase will be required
each year.
Investment in working capital equal to 25% of the sales increase will also require each year.
Debt financing will be used to fund 40% of the investments in net capital items and working capital.
The beta for Medina Werks is 1.10. The risk-free rate of return is 6% and the equity risk premium is
4.5%.
There are 70 million outstanding shares.
What is the estimated total market value of equity and the value per share?
Charles Jones is evaluating Marathon Oil Company using three stage growth model. He has accumulated the
following information: