Apple Inc.
, dividends per share (DPS) forecast
Year DPS(t) or TV(t) Dividend Growth Rate
0 DPS(0) -
1 DPS(1) 47.00%
2 DPS(2) 39.49%
3 DPS(3) 31.42%
4 DPS(4) 23.09%
5 DPS(5) 15.27%
5 TV(5)
PV OF CASH EARNINHGS
Growth Rate Difference
Rate of Return
Intrinsic value of Apple's common stock (per share)
Current Share Price
Calcualation of Terminal Value
Last year's Dividend per Share 3.25
Growth Rate 15.27%
Rate of Return 15.97%
Terminal Value 538.253566276356
Ke 12%
Period Dividend payout PVF@12%
D0 10
1 11 0.892857142857143
2 12.1 0.79719387755102
2 181.5 0.79719387755102
Period Dividend payout PVF@12%
1 11 0.892857142857143
2 12.1 0.79719387755102
3 12.705 0.711780247813411
TV3 190.575 0.711780247813411
Value 15.97%
0.85 -
1.25 1.08
1.74 1.3
2.29 1.47
2.82 1.56
3.25 1.55 263.5963 9% 10% 11%
538.253566276356 256.65 14%
263.596294725704 15.97%
16%
15.97% 17%
263.596294725704 18%
142 19%
20%
21%
22%
PV
9.82142857142857 0.06
9.64604591836735 0.00
144.69068877551 0.01
164.158163265306 0.066086695440045
PV
9.82142857142857
9.64604591836735
9.04316804846938
135.647520727041
164.158163265306
12% 13% 15.27%
Apple Inc., dividends per share (DPS) forecast
Year DPS(t) or TV(t) Dividend Growth Rate
0 DPS(0) -
1 DPS(1) 47.00%
2 DPS(2) 39.49%
3 DPS(3) 31.42%
4 DPS(4) 23.09%
4 TV 4 15.27%
PV OF CASH EARNINHGS
Rate of Return
Intrinsic value of Apple's common stock (per share)
Current Share Price
Calcualation of Terminal Value
Last year's Dividend per Share 2.82
Growth Rate 15.27%
Rate of Return 15.97%
Terminal Value 466.950261365798
Value 15.97%
0.85 -
1.25 1.08
1.74 1.3
2.29 1.47
2.82 1.56
466.95 258.20 263.5963 9% 10% 11%
263.596294725704 14% 33.43742 40.65912 52.69528
15% 28.83412 33.69081 40.97586
15.97% 16% 25.54604 29.04528 33.94421
263.596294725704 17% 23.07999 25.72704 29.25644
142 18% 21.16194 23.23836 25.90803
19% 19.62751 21.30272 23.39673
20% 18.37206 19.75421 21.44349
21% 17.32586 18.48724 19.8809
22% 16.44061 17.43144 18.60242
12% 13% 14%
76.7676 148.9846 #DIV/0!
53.1176 77.40109 150.2515
41.2926 53.53992 78.03457
34.1976 41.60934 53.96225
29.4676 34.45099 41.92608
26.08903 29.67876 34.70439
23.5551 26.27002 29.88992
21.58427 23.71347 26.45102
20.0076 21.72504 23.87184
Assumptions
Rate of return on LT Treasury Composite 3.33%
Expected rate of return on market portfolio 13.05%
Systematic risk (β) of Apple's common stock 1.30
Required rate of return on Apple's common stock 15.97%
CAPM Model = Risk free rate + Beta*(Market Risk-Risk free return)
return)
Exercise
year 0 year 1
P&L EBIT 200
Sales 500 700 less tax 40
COGS 300 350 NOPAT 160
OPEX 100 150
EBIT 100 200 year 0 year 1
Int 50 70 WC 100 -25
PBT 50 130
Tax 10 26 Gross FA 1000 1100
PAT 40 104 Acc Dep -800 -835
Net FA 200 265
Balance Sheet
CA 175 275 Capex 100
CL 75 300 Dep Expense -35
WC 100 -25
Original method Alternative method
Gross FA 1000 1100 EBIT 200
Acc Dep 800 835 less tax 40
Net FA 200 265 NOPAT 160 PAT
less/add 𝚫WC -125 plus dep
Debt repayment is 50 plus dep 35 less capex
Tax rate is 20% less capex 100 less/add 𝚫WC
FCFF 220 less debt repay
plus debt raised
Int(1-tax) 56 FCFE
Debt repayment 50
FCFE 114
tive method
104
35
100
-125
50
0
114
Considering the FY0 as the current year, computing the changes in investment taking FY0 as reference
that year.
Valuation method used - DCF as related company data not given and there's steady growth history
INR Million FY -2 FY -1 FY 0 FY 1
P&L A/c
Net Sales 628.0 655.0 920.0 1,276.2
4.30% 40.46% 38.72%
Total Income 628.0 655.0 920.0 1,276.2
Raw Material Consumption 353.0 340.0 450.0 666.0
Power & Fuel Expenses 16.0 16.0 25.0 32.0
Direct Labour Cost 30.0 34.0 61.0 79.0
Other Manufacturing Expenses 28.0 26.0 50.0 64.0
Selling & Distribution Expenses 110.0 127.0 150.0 200.0
Total Expenses 537.0 543.0 736.0 1,041.0
EBITDA 91.0 112.0 184.0 235.2
EBITDA Margin (%) 14.5% 17.1% 20.0% 18.4%
Depreciation 18.0 17.0 22.4 31.7
PBIT 73.0 95.0 161.6 203.5
Interest 35.0 28.0 27.0 54.8
Profit Before Tax 38.0 66.2 134.6 148.8
Tax 15.0 32.0 50.0 64.0
Tax Rate (%) 39.5% 48.4% 37.2% 43.0%
Net Profit 23.0 34.2 84.6 84.8
3.66% 5.22% 9.19% 6.64%
Balance Sheet
Share Capital 50.0 50.0 50.0 50.0
Reserve & Surplus 65.0 108.0 192.6 277.3
180.0
Shareholders Funds 115.0 158.0 242.6 507.3
Term Loans 100.0 86.0 146.0 386.0
Working Capital Loans 117.0 137.0 227.0 237.0
Loan Funds 217.0 223.0 373.0 623.0
Deferred Tax Liabilities 20.0 20.0 24.0 24.0
Total Liabilities 352.0 401.0 639.6 1,154.3
Gross Fixed Assets 261.0 277.0 417.0 597.0
Less : Accumulated Depreciation 88.0 105.0 127.4 159.1
Net Fixed Assets 173.0 172.0 289.6 437.9
Capital Work in Progress 15.0
Current Assets, Loans & Advances
Accounts Receivables 166.0 207.0 273.0 411.0
Inventories 88.0 100.0 172.0 210.0
Cash & Bank Balance 4.0 20.0 2.5 217.4
Loans & Advances & Other Assets 33.0 36.0 66.0 97.0
Sub-total 291.0 363.0 513.5 935.4
Current Liabilities & Provisions 112.0 149.0 163.5 219.0
Net Working Capital 175.0 194.0 347.5 499.0
Total Assets 352.0 401.0 639.6 1,154.3
Total Assets 352.0 416.0 639.6 1,154.3
# Equivalance point between FCFF and FCFE so that they both reconcile.
FCFF = FCFE + Debt - Cash , We do debt - cash because debt is always seen as net of cash balnce in the m
Equity Value = FCFE/Ke and Firm Value = FCFF/WACC
** Enterprise Value = Firm Value, analysists focus on EV because within a company, debt equity mix is very
mix and not just equity value. This becomes easier for the analyst.
# While calculating Free Cash Flows we will be considering non cash WC of the business because we are va
operating earnings.
# We should not take cash balance while calculating the WC changes because this cash may not be becaus
investment and financing activities. Also we are calculating cash flows and this is figure we arrive at.
stment taking FY0 as reference year and discounting the cashflows to
ere's steady growth history FCF Calculation
FY 2 FY 3 FY 4 FY 5 Particulars FY 1
EBIT 203.53
Less: Tax 87.56
1,512.8 1,923.6 2,674.2 3,916.3 Tax on EBT 64.00
18.54% 27.16% 39.02% 46.45% Tax Shield on interest 23.56
1,512.8 1,923.6 2,674.2 3,916.3 Total Tax 87.56
711.0 913.7 1,270.2 1,860.2 Interest tax shield 23.56
36.3 48.1 66.9 97.9 NOPLAT - Net Operating Profit Less Adjusted Taxe 115.97
90.8 111.6 180.5 264.3
68.1 80.8 115.0 168.4 Net Investment Calculation
226.9 288.5 401.1 587.4 Change in GROSS fixed assets 180.00
1,133.1 1,442.7 2,033.7 2,978.3 Depreciation
379.7 480.9 640.5 937.9 Change in WIP
25.1% 25.0% 24.0% 24.0% Change in Working Capital
35.5 37.5 35.1 38.7 Net Investment
344.2 443.4 605.4 899.3 FCFF
73.8 73.5 74.0 67.9
270.4 369.9 531.4 831.4 Interest paid (Tax adjusted)
91.9 125.7 180.6 282.6 Changes in Loan Funds
34.0% 34.0% 34.0% 34.0%
178.5 244.2 350.8 548.8 FCFE
11.80% 12.69% 13.12% 14.01%
50.0 50.0 50.0 50.0
455.8 700.0 1,050.8 1,599.6
180.0 180.0 180.0 180.0
685.8 930.0 1,280.8 1,829.6
311.0 344.2 318.7 228.7
411.9 411.9 411.9 411.9
722.9 756.1 730.6 640.6
24.0 24.0 24.0 24.0
1,432.7 1,710.1 2,035.4 2,494.2
797.0 797.0 797.0 797.0
194.6 232.1 267.2 305.8
602.4 564.9 529.8 491.2
497.9 646.0 888.0 1,279.7
281.9 381.9 572.9 808.1
198.8 312.9 326.5 341.3
97.0 97.0 97.0 97.0
1,075.6 1,437.9 1,884.4 2,526.0
245.3 292.7 378.8 523.0
631.5 832.3 1,179.1 1,661.8
1,432.7 1,710.1 2,035.4 2,494.2
1,432.7 1,710.1 2,035.4 2,494.2
n as net of cash balnce in the market.
mpany, debt equity mix is very volatile and hence they go for a
the business because we are valuing the business on its
use this cash may not be because of operations, it can be from
d this is figure we arrive at.
FY 2 FY 3 FY 4 FY 5
344.15 443.45 605.41 899.29
116.98 150.73 205.78 305.67
91.90 125.75 180.64 282.60
25.08 24.98 25.14 23.06
116.98 150.73 205.78 305.67
25.08 24.98 25.14 23.06
227.18 292.72 399.63 593.62
200.00 - - -
NOI NI
tax rate 30% FCFF FCFE
pre tax Kd 4%
Ke 9.00% EBIT 1250 EBIT
Book value debt 6500 6500 65% - tax on EBIT 375 - interest
Book value equity 3500 7700.141 35%
EBIT 1250 Million NOPLAT 875 PBT
FCFF 875 - tax
WACC-g 6.16%
Value of firm 14199.94 PAT
debt 6500 FCFE
equity 7699.935 Value of equity
FV
0.35 3500 7700 E 54% ke 9.00%
0.65 6500 6500 D 46% kd 4.00%
10000 100% tax 30%
WACC 6.1620%
1250
260
990
297
693
693
7700
14200
6.162%
0.06162
14
118.46370683580000%
Bel Vino Base Case Valuation: Brief
<=History Pro Forma =>
Operating Forecasts 2010 2011 2012 2013 2014 2015 2016
US Sales 330 328 330
International Sales 29 32 36
Net Sales 359 360 366
Cost of Goods Sold 160 150 140
Depreciation 24 9 9
Marketing Expense 23 24 24
Other SG&A 107 108 111
EBIT 45 69 82
Supplementary Schedules
Net Working Capital
working cash 10 10 10
A/R 98 99 100
Inventory 310 291 272
Other CA 7 7 7
A/P 90 90 90
Net working capital 335 317 299
D NWC
Other assets 45 45 45
D Other assets
Beginning net PP&E 144 140 132
Capital Expenditures 20 20 20
Depreciation 24 28 26
Ending Net PP&E 140 132 126
Free Cash Flow Calculation Pro Forma =>
2013 2014 2015 2016
EBIT
EBIT(1-t) tax rate = 40%
Depreciation
Capital expenditures
D NWC
D Other assets
Free cash flow
Terminal value Perp. g = 3%
Discount factor
PV(FCF + TV)
PV Enterprise
Less EOY 2008 Debt 301
Estimated Equity Value
number of shares (000,000s) 10.0
Value per share ₹ -
2017 Pro forma assumptions
0.5% annual growth
13.0% annual growth
38.0% of sales
20.0% of beginning net PP&E
7.0% of sales
30.0% of sales
2.8% of sales
100 days sales outstanding
708 days of COGS
2.0% of sales
90 days of cash op expenses
12.50% of sales
given
20% of beginning net PP&E
2017 WACC Calculation
Asset beta 0.82
Risk-free rate 4.86%
Market Risk Premium 5.00%
Cost of debt 6.00%
Target D/V 35%
Implied debt beta
growing perpetuity
Re-levered equity beta
Cost of equity
WACC
Starshine Base Case Valuation: Brief
<=History Pro Forma =>
Operating Forecasts 2010 2011 2012 2013 2014 2015 2016 2017
US Sales 250 255 265
International Sales 225 240 260
Net Sales 475 495 525
Cost of Goods Sold 200 205 230
Depreciation 40 55 46
Marketing Expense 52 53 53
Other SG&A 148 152 152
EBIT 35 30 44
Supplementary Schedules
Net Working Capital
working ca 40 30 21
A/R 175 179 181
Inventory 250 262 271
Other CA 33 34 34
A/P 83 85 86
Net working capital 415 419 422
D NWC
Other assets 24 24 24
D Other assets
Beginning net PP&E 307 277 232
Capital Expenditures 10 10 10
Depreciation 40 55 46
Ending Net PP&E 277 232 195
Free Cash Flow Calculation Pro Forma =>
2013 2014 2015 2016 2017
EBIT
EBIT(1-t) tax rate = 40%
Depreciation
Capital expenditures
D NWC
D Other assets
Free cash flow
Terminal value Perp. g = 3%
Discount factor
PV(FCF + TV)
PV Enterprise
Less EOY 2008 Debt 235
Estimated Equity Value
number of shares (000,000s) 8.0
Value per share $ -
Pro forma assumptions
4.0% annual growth
8.0% annual growth
43.8% of sales
20.0% of beginning net PP&E
10.0% of sales
29.0% of sales
4.0% of sales
126 days sales outstanding
430 days of COGS
6.5% of sales
136 days of COGS
4.7% of sales
given
20% of beginning net PP&E
WACC Calculation
Asset beta 0.82
Risk-free rate 4.86%
Market Risk Premium 5.00%
Cost of debt 6.00%
Target D/V 27%
Implied debt beta
growing perpetuity Re-levered equity beta
Cost of equity
WACC
m
1 BigCo’s Chief Financial Officer is trying to determine a fair value for PrivCo, a non-publicly traded firm th
publicly traded. Ion and Zenon have price-to-earnings ratios of 20 and 15, respectively. Moreover, Ion an
amortization (EBITDA) of 10 and 8, respectively. BigCo estimates that next year PrivCo will achieve net in
expects to have to pay at least a 30% premium to the firm’s market value. What should BigCo expect to
a Based on price-to-earnings ratios?
b Based on EBITDA?
a Average P/E
Value with 30% premium
b Average EV/EBITDA
Value with 30% preemium
LAFCO Industries believes that its two primary product lines, automotive and commercial aircraft valves
firms entering its industry. LAFCO has $200 million in debt outstanding. Senior management expects the
respectively, in earnings before interest, taxes, depreciation, and amortization next year. Senior manage
excessive current leverage. A competitor to its automotive valve business last year sold for 10 times EBI
12 times EBITDA. Estimate LAFCO’s breakup value before taxes.
Debt outstanding
EBITDA
P/EBITDA
P/EBITDA
Siebel Incorporated, a non-publicly traded company, has 2009 after-tax earnings of $20 million, which ar
spending equals the firm's rate of depreciation; and the annual change in working capital is expected to
historical risk premium of stocks over the risk-free rate is 5.5 percent. Publicly-traded Rand Technology,
earnings, which included a 20 percent premium over its current market price. Aware of the premium pa
were to attempt to sell the firm in the near future. They chose to value the firm using the discounted cas
valid. Estimate of the firm's value.
Sibel corporation
PAT
Forecasted growth
Beta
Risk free rate
Market risk premium
a What is the value of Siebel using the DCF method?
b What is the value using the comparable recent transactions method?
c What would be the value of the firm if we combine the results of both methods?
a Cost of equity
Value of equity
b Value
c Combined value
Titanic Corporation has reached agreement with its creditors to liquidate voluntarily its assets and to use
able to sell off its assets in an orderly fashion, realizing as much as 70% of the book value of its receivabl
believes that the land on which it is located can be sold for 120% of book value. The firm has legal and p
common stock outstanding. Estimate the amount of cash that would remain for the firm’s common sha
Balance Sheet Item
Cash
Accounts Receivable
Inventory
Net Fixed Assets Excluding Land
Land
Total Assets
Total Liabilities
Shareholders Equity
Liquidation process associated
Cash Available for Common Shareholders
5
Best’s Foods is seeking to acquire the Heinz Baking Company, whose shareholders equity and goodwill a
$400 million, 30 percent more than its tangible book value (TBV). What was the tangible book value of t
Heinz Baking Company? Show your work.
Best Foods
Heinz bakery
Comparable bakery, acquisition value
Premium
Tangible book value of recently acquired bakery
Likely purchase price of Heinz Baking Company
6
Delhi Automotive Inc. is the leading supplier of specialty fasteners for passenger cars in the U.S. market,
years has been fueled by high levels of reinvestment in the firm. While this has resulted in the firm havin
positive cash flow. Delhi is privately owned and has announced that it is going to undertake an initial pu
high fixed cost industry and understand that market share is an important determinant of future profita
market share of 38 percent and an $800 million market value. How should investors value the Delhi IPO
Market share
Thornton Auto, market leader
Market leader has a market value and market share of $800 million and 38%
Each percentage point of market share
Delhi has a market share of 25%, the IPO could have a potential value of
Acquirer Incorporated’s management believes that the most reliable way to value a potential target firm
Acquirer’s Chief Financial Officer estimates that the value of Target Inc. could range, before an acquisitio
million using the comparable companies’ relative valuation method. A valuation based on a recent comp
would be willing to sell for a 20 percent acquisition premium, based on the premium paid for the recent
based on the three estimates. In calculating a weighted average of the three estimates, she gives a value
estimate. What it weighted average estimate she gives to the CEO? Show your work.
Target's premium Valuation
Acquisition premium
CFOs values
9
Acquirer Company’s management believes that there is a 60 percent chance that Target Company’s free
from this year’s level of $5 million. Sustainable growth beyond the fifth year is estimated at 4 percent pe
will grow at half that annual rate during the next five years and then at a 4 percent rate thereafter. The
percent during the sustainable growth period for each scenario. What is the expected value of Target C
FCF
Probability
Growth in next (years)
Beyond 5 years
Discount rate
Years
1 6.00
2 7.20
3 8.64
4 10.37
5 12.44
vCo, a non-publicly traded firm that BigCo’s is considering acquiring. Several of PrivCo’s competitors, Ion International, and Zenon are
15, respectively. Moreover, Ion and Zenon’s shares are trading at a multiple of earnings before interest, taxes, depreciation, and
next year PrivCo will achieve net income and EBITDA of $4 million and $8 million, respectively. To gain a controlling interest in the firm, Big
lue. What should BigCo expect to pay for PrivCo?
Lon Zenon PAT
P/E 20 15 PrivCo 4
P/EBITDA 10 8
ve and commercial aircraft valves, are rapidly becoming obsolete. Its free cash flow is rapidly diminishing as it loses market share to new
g. Senior management expects the automotive and commercial aircraft valve product lines to generate $25 million and $15 million,
rtization next year. Senior management also believes that they will not be able to upgrade these product lines due to declining cash flow a
ness last year sold for 10 times EBITDA. Moreover, a company that is similar to its commercial aircraft valve product line sold last month fo
200 million Value of automotive department
25 million Automotive value of valve department
15 million Valve Total value
10 Competitor automotive Less, debt outstanding
12 Competitor valve LAFCO’s breakup value before taxes
x earnings of $20 million, which are expected to grow at 5 percent annually into the foreseeable future. The firm is debt-free, capital
e in working capital is expected to be minimal. The firm's beta is estimated to be 2.0, the 10-year Treasury bond is 5 percent, and the
Publicly-traded Rand Technology, a direct competitor of Siebel's, was sold recently at a purchase price of 11 times its 2009 after-tax
et price. Aware of the premium paid for the purchase of Rand, Siebel's equity owners would like to determine what it might be worth if the
e the firm using the discounted cash flow and comparable recent transactions methods. They believe that either method provides an equa
Rand technology
20 millions P/E 11
5% Premium 20%
2
5%
5.50%
methods?
ate voluntarily its assets and to use the proceeds to pay off as much of its liabilities as possible. The firm anticipates that it will be
% of the book value of its receivables, 40% of its inventory, and 25% of its net fixed assets (excluding land). However, the firm
ook value. The firm has legal and professional expenses associated with the liquidation process of $2,900,000. The firm has only
remain for the firm’s common shareholders once all assets have been liquidated.
Book Value of Liquidation process associated 2900000
Liquidation Value
Assets
10
20 70%
15 40%
8 25%
6 120%
59
35
24
hareholders equity and goodwill are $41 million and $7 million, respectively. A comparable bakery was recently acquired for
at was the tangible book value of the recently acquired bakery? How much should Best’s Foods expect to have to pay for the
Equity Goodwill
41 7
passenger cars in the U.S. market, with an estimated 25 percent share of this $5 billion market. Delhi’s rapid growth in recent
e this has resulted in the firm having “state of the art” plants, it has also resulted in the firm showing limited profitability and
is going to undertake an initial public offering in the near future. Investors know that economies of scale are important in this
tant determinant of future profitability. Thornton Auto Inc., a publicly traded firm and the leader in this market, has an estimated
ould investors value the Delhi IPO? Show your work.
25% 5 Billion
38% 800 Million
way to value a potential target firm is by averaging multiple valuation methods, since all methods have their shortcomings. Consequently,
c. could range, before an acquisition premium is added, from a high of $650 million using discounted cash flow analysis to a low of $500
valuation based on a recent comparable transaction is $672 million. The CFO anticipates that Target Inc.’s management and shareholders
n the premium paid for the recent comparable transaction. The CEO asks the CFO to provide a single estimate of the value of Target Inc.
three estimates, she gives a value of .5 to the recent transactions method, .3 to the DCF estimate, and .2 to the comparable companies’
ow your work.
DCF Comparable Recent transaction
650 500 672
20%
0.3 0.2 0.5
hance that Target Company’s free cash flow to the firm will grow at 20 percent per year during the next five years
h year is estimated at 4 percent per year. However, they also believe that there is a 40 percent chance that cash flow
t a 4 percent rate thereafter. The discount rate is estimated to be 15 percent during the high growth period and 12
t is the expected value of Target Company?
5 million
60% 40%
5 20% 10%
4% 4%
15% First 5 years 12% Beyond 5 years
5.50
6.05
6.66
7.32
8.05
ernational, and Zenon are
es, depreciation, and
rolling interest in the firm, BigCo
EBITDA
8
it loses market share to new
million and $15 million,
es due to declining cash flow and
product line sold last month for
firm is debt-free, capital
ond is 5 percent, and the
times its 2009 after-tax
e what it might be worth if they
ther method provides an equally
cipates that it will be
owever, the firm
0. The firm has only
ntly acquired for
ve to pay for the
d growth in recent
profitability and
important in this
ket, has an estimated
shortcomings. Consequently,
w analysis to a low of $500
management and shareholders
e of the value of Target Inc.
the comparable companies’
