Reeby Sport

Use Tables 3 and 4 to forecast free cash flow for Reeby Sports from
2004 to 2010. What is the present value of these cash flows in 2003, including PV(terminal value) in 2010?
Free Cash Flow 2004 2005 2006 2007 2008 2009 2010 2011 Terminal
= After-tax profits 5,25 5,70 3,00 3,40 4,35 6,00 7,61 7,60
+ Depreciation 2,40 3,10 3,12 3,17 3,26 3,44 3,68 3,94
- CapEx 4,26 10,50 3,34 3,65 4,18 5,37 6,28 8,50
- Inc. In NWC 1,39 0,60 0,28 0,42 0,93 1,57 2,00
FCF 2,00 -2,30 2,50 2,50 2,50 2,50 3,01 3,04 108,53
NPV(FCF 2004-2010) 8,01
PV(Terminal) 55,69
PV(Total) 63,70
Annual growth rate g is given by following relationship g ✝RE
∙✈1− d ✉ g ✝0,12 ∙✈ 1− 0,40✉ ✝7,2
The terminal value is given by
T ✝
FCFt☞1
kE − g
T ✝
3,04
0,10− 0,072
✝108,53
This must be discounted to t = 2003, and will be the PV(Terminal) found above.
PV ✈ Terminal✉ ✝
108,53
✈1☞0,10✉
7
✝55,69
The 2011 After-tax profit is 12% of the start-of-the-year book equity. The depreciation is calculated as a 7,2% growth of the 2010 year depreciation and the
CapEx is depreciation + 60% of the profits (1-dividend). This gives us the FCF used in the terminal value calculation.
REEBY SPORT 1A more conservative valuation, as a consequence of more competition in the market, will be based on a scenario where Reeby Sport will loose its competitive edge by
2010 and will have no growth from that date and forward.
In that case we will capitalize 2011 earnings at 10%, which covers the cost of capital.
T ✝
7,60
0,10
✝ 76,00
PV ✈Terminal✉✝
76,00
✈1☞0,10✉
7
✝39,00
PV ✈ Total✉ ✝39,00☞8,01✝47,01
Use the information given for Molly Sports to check your forecast of terminal value. What would you recommend as a reasonable range for the present value of Reeby Sports?
What is the present value of a share of stock in the company? Give a reasonable range.
Multiple analysis Multiple Value Estimated value (2010) Discounted value (2003)
P/E 12 91,26 54,84
P/B* 150 % 94,97 56,74