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Group Assignment

The document provides financial information for CON company including income statement, balance sheet, and cash flow statement for 2021-2023. It also lists assumptions for projecting key financial metrics from 2024-2028. The task is to estimate CON's enterprise value and equity value based on the information given and determine the maximum offer price ABC could have paid per share for CON.

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37 views

Group Assignment

The document provides financial information for CON company including income statement, balance sheet, and cash flow statement for 2021-2023. It also lists assumptions for projecting key financial metrics from 2024-2028. The task is to estimate CON's enterprise value and equity value based on the information given and determine the maximum offer price ABC could have paid per share for CON.

Uploaded by

1954032027cuc
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Group assignment – Valuation

In 2023, the management team of the ABC company acquired the CON company with a purchase price of $80/share.
Other expenses of the deal were $7 million.

CON has some financial information:

A. Income statement

$Million 2021 2022 2023


Sales $ 3,588.1 $ 3,775.7 $ 3,958.5

Cost of Goods Sold 1,482.0 1,665.7 1,664.1


Gross Profit 2,106.1 2,110.0 2,294.4

SG&A 1,023.2 1,009.0 1,054.6


Other Operating Expense 470.7 453.2 414.6
Depreciation 123.0 123.6 126.0
Amortization 299.6 313.9 302.9
EBIT 189.6 210.3 396.3

Unusual (Gain) Loss (37.2) - -


(Income) from Affiliates - -
Other Expense (Income) 60.0 10.9 11.9
Interest (Income) (4.3) (3.9) (2.4)
Interest Expense 152.3 162.1 123.9
Earnings before Taxes 18.8 41.2 262.9

Noncontrolling Interest - - -
Taxes 63.7 100.9 101.4
Net Income before Extra Items (44.9) (59.7) 161.5

Extraordinary Items 0.6 0.7 0.4


Net Income after Extra Items $ (44.3) $ (59.0) $ 161.9

B. Balance sheet statement

$Million 2021 2022 2023


Cash $ 854.9 $ 882.1 $ 276.3
Accounts Receivable 587.5 637.0 697.3
Inventory 323.1 377.9 403.5
Other 281.0 196.6 248.1
Current Assets 2,046.5 2,093.6 1,625.2

Property, Plant, & Equipment 870.4 858.7 871.4


Accumulated Depreciation - - -
Net Property, Plant, & Equipment 870.4 858.7 871.4

Goodwill 4,372.1 4,366.7 4,503.4


Intangible Assets 2,040.2 1,746.6 1,525.8
Deferred Taxes 26.8 28.8 23.0
Other 130.2 93.6 89.2

Total Assets $ 9,486.2 $ 9,188.0 $ 8,638.0

Accounts Payable 174.4 178.4 186.6


Other 972.0 1,317.9 1,005.8
Current Liabilities 1,146.4 1,496.3 1,192.4

Revolving Credit Facility - - -


Senior Debt 2,727.6 2,297.7 2,060.9
Subordinated Debt - - -
Total 2,727.6 2,297.7 2,060.9

Deferred Taxes 558.0 410.6 287.4


Other 616.1 384.1 443.9

Total Liabilities 5,048.1 4,588.7 3,984.6

Common Stock 5,225.0 5,443.2 5,733.7


Preferred Equity - - -
Retained Earnings 532.5 911.0 1,341.8
Treasury Stock (1,420.0) (1,820.0) (2,482.0)
Other Adjustments 96.6 65.1 59.1
Noncontrolling Interest 4.0 - 0.8
Total Stockholders Equity 4,438.1 4,599.3 4,653.4

Total Liabilities and Equity $ 9,486.2 $ 9,188.0 $ 8,638.0

C. Cash flow statement

$Million 2022 2023


Net Income $ (59.0) $ 161.9
Depreciation & Amortization 437.5 428.9
Change in
Accounts Receivable (49.5) (60.3)
Inventory (54.8) (25.6)
Accounts Payable 4.0 8.2
Deferred Taxes (149.4) (117.4)
Other Liabilities (232.0) 59.8
Cash Flow from Operating Activities 359.7 97.1
Capital Expenditures (13.8) (10.3)
Acquisitions (0.1) (149.0)
Sale of Assets 3.4 25.5
Cash Flow from Investing Activities (10.5) (133.8)

Net Change in Equity (213.3) (377.5)


Net Change in Debt (429.9) (236.8)
Dividends Paid - -
Cash Flow from Financing Activities (643.2) (614.3)

Net Change in Cash (294.0) (651.0)

Beginning Cash Balance 854.9 882.1

Cash Available for Revolving Credit $ 560.9 $ 231.1

D. Assumption for each key input variable in the projection model

2024 - 2028
Income Statement
Sales Growth 8.0%
COGS as a % of Sales 41.0%
SG&A % annual increase (decrease) 4.0%
Other Operating Expense as a % of Sales 11.0%

Balance Sheet
Receivable Days 49.0
Inventory Days 75.0
Other Current Assets % of Sales 5.8%
Accounts Payable Days 39.0
Other Current Liabilities % of COGS 67.0%

Cash Flow
Capex as a % of Sales 0.5%
Depreciation as a % of Sales 3.2%
Goodwill Amortization (Pre-6/2001) -
Amortization of Intangibles 300.0
Retirement of Senior Debt 300.0
Retirement of Subordinated Debt -
Chg in Deferred Taxes - Asset -
Chg in Deferred Taxes - Liab -
Dividend from Affiliates -
Payout Ratio of Affiliates -
Dividends per Share -
Dividend Payout Ratio -
Dividends Paid -
Effective Tax Rate 40.0%

Other
Shares Outstanding - Basic 171
Shares Outstanding - Diluted 175
Revolving Credit Facility Rate 2.00%
Senior Debt Rate 5.00%
Subordinated Debt 8.00%
Average Interest Rate ?
Marketable Securities Rate -

The beta of CON is estimated at 1.8. The government bond rate is 2.5%, and the normal spread between the return on
stocks and the government bond is believed to be 5.8%. The target debt-to-equity ratio (D/E) is 75%, representing the
future D/E ratio desired by the firm. After five years, the management team expects the terminal growth rate to be 3%
and the terminal period WACC to be 9.5%.

1. Estimate enterprise value


2. Estimate equity value
3. ABC paid $80 per share for each outstanding share of CON. What is the maximum offer price ABC could
have made? Why does the offer price at which NPV turns negative represent the maximum offer price for
ABC.

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