Growth Rate 7.

50%
Historical Period Projection P
2016 2017 2018 2019 2020
Sales $ 2,600.00 $ 2,900.00 $ 3,200.00 $ 3,450.00 $ 3,708.75
% growth NA 11.54% 10.34% 7.81% 7.50%
Cost of Goods Sold $ 1,612.00 $ 1,769.00 $ 1,920.00 $ 2,070.00 $ 2,225.25
Gross Profit $ 988.00 $ 1,131.00 $ 1,280.00 $ 1,380.00 $ 1,483.50
% margin 38.00% 39.00% 40.00% 40.00% 40.00%
Selling, General & Administrative $ 496.60 $ 551.00 $ 608.00 $ 655.00 $ 704.66
EBITDA $ 491.40 $ 580.00 $ 672.00 $ 725.00 $ 778.84
% margin 18.90% 20.00% 21.00% 21.01% 21.00%

Assumptions:
Sales: 7.5% growth in 2020, 6.0% growth in 2021, then decreasing 1% per year thereafter
COGS: COGS 60.0% of sales, hold constant throughout projection period
SG&A: 19.0% of sales, hold constant throughout projection period

Historical Period Projection P

2016 2017 2018 2019 2020
EBITDA $ 491.40 $ 580.00 $ 672.00 $ 725.00 $ 778.84
Depreciation and Amortization $ 156.00 $ 174.00 $ 192.00 $ 207.00 $ 222.53
EBIT $ 335.40 $ 406.00 $ 480.00 $ 518.00 $ 556.31
% margin 12.90% 14.00% 15.00% 15.01% 15.00%
Taxes $ 83.85 $ 101.50 $ 120.00 $ 129.50 $ 139.08
EBIAT $ 251.55 $ 304.50 $ 360.00 $ 388.50 $ 417.23

Assumptions:
D&A: 6.0% of sales, hold constant throughout projection period
Tax Rate: 25.0%, hold constant throughout projection period
 6.00% 5.00% 4.00% 3.00%
Projection Period
2021 2022 2023 2024
$ 3,931.28 $ 4,127.84 $ 4,292.95 $ 4,421.74
6.00% 5.00% 4.00% 3.00%
$ 2,358.77 $ 2,476.70 $ 2,575.77 $ 2,653.04
$ 1,572.51 $ 1,651.14 $ 1,717.18 $ 1,768.70
40.00% 40.00% 40.00% 40.00%
$ 746.94 $ 784.29 $ 815.66 $ 840.13
$ 825.57 $ 866.85 $ 901.52 $ 928.57
21.00% 21.00% 21.00% 21.00%

Projection Period
2021 2022 2023 2024
$ 825.57 $ 866.85 $ 901.52 $ 928.57
$ 235.88 $ 247.67 $ 257.58 $ 265.30
$ 589.69 $ 619.18 $ 643.94 $ 663.26
15.00% 15.00% 15.00% 15.00%
$ 147.42 $ 154.79 $ 160.99 $ 165.82
$ 442.27 $ 464.38 $ 482.96 $ 497.45
 Historical Period Projection
2016 2017 2018 2019 2020
Sales $ 2,600.00 $ 2,900.00 $ 3,200.00 $ 3,450.00 $ 3,708.75
Cost of Goods Sold $ 1,612.00 $ 1,769.00 $ 1,920.00 $ 2,070.00 $ 2,225.25

Current Assets
Accounts Receivable $ 317.00 $ 365.50 $ 417.40 $ 450.00 $ 483.75
Inventories $ 441.60 $ 496.80 $ 556.50 $ 600.00 $ 645.00
Prepaid Expenses and Other $ 117.00 $ 142.10 $ 162.30 $ 175.00 $ 188.13
Total Current Expenses $ 875.60 $ 1,004.40 $ 1,136.20 $ 1,225.00 $ 1,316.88

Current Liabilities
Accounts Payable $ 189.90 $ 189.00 $ 199.40 $ 215.00 $ 231.13
Accrued Liabilities $ 221.00 $ 237.80 $ 255.10 $ 275.00 $ 295.63
Other Current Liabilities $ 75.40 $ 84.10 $ 92.80 $ 100.00 $ 107.50
Total Current Liabilities $ 486.30 $ 510.90 $ 547.30 $ 590.00 $ 634.25

Net Working Capital $ 389.30 $ 493.50 $ 588.90 $ 635.00 $ 682.63

% sales 14.97% 17.02% 18.40% 18.41% 18.41%

Increase/Decrease in NWC NA $ 104.20 $ 95.40 $ 46.10 $ 47.63

Assumptions
Current Assets
Days Sales Outstanding 44.5 46 47.61 47.61 47.61
Days Inventory Held 100 102.5 105.79 105.80 105.80
Prepaids and Other CA (% of sales) 4.50% 4.90% 5.07% 5.07% 5.07%

Current Liabilities
Days Payable Outstanding 43 39 37.91 37.91 37.91
Accrued Liabilities (% of sales) 8.50% 8.20% 7.97% 7.97% 7.97%
Other Current Liabilities (% of sales) 2.90% 2.90% 2.90% 2.90% 2.90%
 Projection Period From Previous Worksheet
2021 2022 2023 2024 solved on 21st Feb 2024
in class!
$ 3,931.28 $ 4,127.84 $ 4,292.95 $ 4,421.74
$ 2,358.77 $ 2,476.70 $ 2,575.77 $ 2,653.04

$ 512.78 $ 538.41 $ 559.95 $ 576.75

$ 683.70 $ 717.89 $ 746.60 $ 769.00
$ 199.41 $ 209.38 $ 217.76 $ 224.29
$ 1,395.89 $ 1,465.68 $ 1,524.31 $ 1,570.04

$ 244.99 $ 257.24 $ 267.53 $ 275.56

$ 313.36 $ 329.03 $ 342.19 $ 352.46
$ 113.95 $ 119.65 $ 124.43 $ 128.17
$ 672.31 $ 705.92 $ 734.16 $ 756.18

$ 723.58 $ 759.76 $ 790.15 $ 813.86

18.41% 18.41% 18.41% 18.41%

$ 40.96 $ 36.18 $ 30.39 $ 23.70

47.61 47.61 47.61 47.61

105.80 105.80 105.80 105.80
5.07% 5.07% 5.07% 5.07%

37.91 37.91 37.91 37.91

7.97% 7.97% 7.97% 7.97%
2.90% 2.90% 2.90% 2.90%
Assumptions
Capital Expenditures 4.5% of sales, hold constant throughout projection period

Historical Period Projection Period

2016 2017 2018 2019 2020 2021 2022
EBIAT $ 252.30 $ 311.30 $ 359.30 $ 388.50 $ 417.23 $ 442.27 $ 464.38
Plus: D&A $ 155.00 $ 165.00 $ 193.00 $ 207.00 $ 222.53 $ 235.88 $ 247.67
Less: Capex $ -114.40 $ -116.00 $ -144.00 $ -155.30 $ -166.89 $ -176.91 $ -185.75
Less: Inc./Dec. in NWC NA $ -104.20 $ -95.40 $ -46.10 $ -47.63 $ -40.96 $ -36.18
Unlevered FCF NA $ 256.10 $ 312.90 $ 394.10 $ 425.24 $ 460.28 $ 490.12
ojection Period
2023 2024
$ 482.96 $ 497.45
$ 257.58 $ 265.30
$ -193.18 $ -198.98
$ -30.39 $ -23.70
$ 516.96 $ 540.07
Using the assumptions for ValueCo below, complete the following questions regarding the weighted average cost of capital

Assumptions:
Debt-to-Total Capitalization 30.00%
Cost of Debt 6.50%
Tax Rate 25.00%
Risk-free Rate 2.50%
Market Risk Premium 7.00%
Size Premium 1.10%

Equity-to-total capitalization
Target Debt-to-equity ratio
After-tax cost of debt

Comparable Companies Unlevered Beta

Company Predicted Levered Beta Market Value of Debt
BuyerCo 1.35 $ 2,200.00
Sherman Co. 1.46 $ 3,150.00
Gasparro Corp. 1.30 $ 1,850.00
Goodson Corp 1.53 $ 2,250.00
S. Momper & Co. 1.50 $ 1,000.00
Mean
Median

Mean Unlevered Beta Target Debt/Equity Target Marginal Tax Rate

Cost of Equity

Weighted Average Cost of Capital

he weighted average cost of capital

Market Value of Equity Debt/Equity Marginal Tax Rate Unlevered Beta

$ 9,800.00 25.00%
$ 5,600.00 25.00%
$ 5,000.00 25.00%
$ 4,160.00 25.00%
$ 2,240.00 25.00%

Relevered Beta
Using the prior answers and information as well as the assumptions below, complete the questions regarding ValueCo’s term

Using an exit multiple of 7.5x, calculate the terminal value using the exit multiple method

Calculation of Terminal Value using EMM

Terminal Year EBITDA (2024E)
Exit Multiple x
Terminal Value

Assuming a mid-year convention and using the EMM terminal value, calculate the implied perpetuity growth rate

Implied Perpetuity Growth Rate

Terminal Year Free Cash Flow (2024E)
Discount Rate
Terminal Value
Implied Perpetuity Growth Rate

Using a 3% perpetuity growth rate, calculate the terminal value using the perpetuity growth method

Calculation of Terminal Value using PGM

Terminal Year Free Cash Flow (2024E)
WACC
Perpetuity Growth Rate
Terminal Value

Using the PGM terminal value, calculate the implied exit multiple

Implied Exit Multiple

Terminal Value
Terminal Year EBITDA (2024E)
WACC
Implied Exit Multiple
tions regarding ValueCo’s terminal value

etuity growth rate

Using the prior answers and information, complete the questions below regarding present value, assuming a mid-year conv

Present Value Calculation

Projection Period
2020 2021 2022 2023
Unlevered Free Cash Flow
WACC
Discount Period
Discount Factor
Present Value of Free Cash Flow

Terminal Value
Terminal Year EBITDA (2024E)
Exit Multiple
Terminal Value
Discount Factor
Present Value of Terminal Value

Enterprise Value
Cumulative Present Value of FCF
Present Value of Terminal Value
Enterprise Value

Assumptions:
Total Debt $ 1,500.00
Cash and Cash Equivalents $ 250.00

Implied Equity Value and Share Price

Enterprise Value
Less: Total Debt
Less: Preferred Stock
Less: Noncontrolling Interest
Plus: Cash and Cash Equivalents
Implied Equity Value

Assuming 80 Million shares outstanding, calculate the implied share price

nt value, assuming a mid-year convention

riod
2024