ENTREPRENEURIAL FINANCE WEEK 4
CHAPTER 9 PROBLEM #2
A. PV= (-50,000/1.40)- (20,000/{1.40^2} + [100,000/ (1.40^3] + [400,000/(1.40^4) + {800,000/[1.40^4]
= -50,000 + (10,204) + 36,443 + 104,123+ 520,616
= $ 615,264
B. PV= (35,714) + (10,204) + 36,443 + 104,123 + 671,688= $766,336
C. (35,714)+ (10,204) + 36,443+ 104,123 + 1,543,256
= $1,637,904
D. PV AT 40%= $1,637,903.85
INVESTMENT @ $3,000,000.00
POST-MONEY VALUATION= $1,637,903.85 + 3,000,000= $ 4,637,903.85
PERCENT OF OWNERSHIP BY INVESTOR:
$3,000,000/ $4,637,903.85= 64.7%
MINICASE: SOFTEC PRODUCTS COMPANY
A. Net sales grew to $374.5 (in thousands of dollars ) in 2015, which is 7% larger than the 2014 level. Net income increased to $54.1 (in thousands of dollars) in 2015.
B. The increases in required NWC are as follows:
2011- 33.3
2012- 41.7
2013-50.0
2014- 58.3
2015- 62.4
Capital expenditures for SoftTec include 26.7 in 2011, 29.2 in 2012, 31.7 in 2013, 34.2 in 2014 and 26.9 in 2015.
C. The formula for the annual operating free cash flows to equity is : Net income + Depreciation – CAPEX- Increases in Required NWC + Increases in interest-bearing debt. Annual operating free cash flows for SoftTec include 2.9 for 2011, 10.3 for 2012, 17.9 for 2013, 25.4 for 2014 and 41.8 for 2015.
D. The estimate for SoftTec’s terminal value cash flow at the end of 2014 is $232.4 (in thousands of dollars). This estimate is obtained by dividing $41.8 (in thousands of dollars) by .18(.25-.07).
E. SoftTec’s value per share at the end of 2010 is $12.37 per 10,000 shares. The present value of SoftTec’s TFCF at the end of 2010 was $123.7.
F. The firm’s equity value if the cost of equity capital were only 20 % would be $18.74 per 10,000 shares. The present value of its TFCF at a 20% discount rate is $187.40.
A. PV= (-50,000/1.40)- (20,000/{1.40^2} + [100,000/ (1.40^3] + [400,000/(1.40^4) + {800,000/[1.40^4]
= -50,000 + (10,204) + 36,443 + 104,123+ 520,616
= $ 615,264
B. PV= (35,714) + (10,204) + 36,443 + 104,123 + 671,688= $766,336
C. (35,714)+ (10,204) + 36,443+ 104,123 + 1,543,256
= $1,637,904
D. PV AT 40%= $1,637,903.85
INVESTMENT @ $3,000,000.00
POST-MONEY VALUATION= $1,637,903.85 + 3,000,000= $ 4,637,903.85
PERCENT OF OWNERSHIP BY INVESTOR:
$3,000,000/ $4,637,903.85= 64.7%
MINICASE: SOFTEC PRODUCTS COMPANY
A. Net sales grew to $374.5 (in thousands of dollars ) in 2015, which is 7% larger than the 2014 level. Net income increased to $54.1 (in thousands of dollars) in 2015.
B. The increases in required NWC are as follows:
2011- 33.3
2012- 41.7
2013-50.0
2014- 58.3
2015- 62.4
Capital expenditures for SoftTec include 26.7 in 2011, 29.2 in 2012, 31.7 in 2013, 34.2 in 2014 and 26.9 in 2015.
C. The formula for the annual operating free cash flows to equity is : Net income + Depreciation – CAPEX- Increases in Required NWC + Increases in interest-bearing debt. Annual operating free cash flows for SoftTec include 2.9 for 2011, 10.3 for 2012, 17.9 for 2013, 25.4 for 2014 and 41.8 for 2015.
D. The estimate for SoftTec’s terminal value cash flow at the end of 2014 is $232.4 (in thousands of dollars). This estimate is obtained by dividing $41.8 (in thousands of dollars) by .18(.25-.07).
E. SoftTec’s value per share at the end of 2010 is $12.37 per 10,000 shares. The present value of SoftTec’s TFCF at the end of 2010 was $123.7.
F. The firm’s equity value if the cost of equity capital were only 20 % would be $18.74 per 10,000 shares. The present value of its TFCF at a 20% discount rate is $187.40.