Estimate the value per share of Shamila Enterprises. Selected financial information you have gathered
1. Estimate the value per share of Shamila Enterprises. Selected financial information you have gathered include the following: • Sales are $3,780 million • Sales will grow at 7% annually for four years, and then at 4% annually thereafter • EBIT is 9.0%
of sales • Interest expense is $50 million and will increase proportionately with sales • Depreciation expense is $100 million and will increase proportionately with sales • Gross investment in plant and equip will be 40% of the increase in sales • New investment
in working capital will be 20% of the increase in sales • New borrowing each year will be 50% of the increase in net plant and equipment and 50% of the increase in working capital • The corporate income tax rate is 25% • The before-tax cost of long-term debt
is 5.0% • The equity beta is 0.96, risk-free rate is 2.0%, and equity risk premium is 6% • The firm’s capital structure is 25% debt and 75% equity • Outstanding long-term debt is $1,100 million • There are 140 million outstanding shares A. Build a spreadsheet
model and estimate the value per share with the Free Cash Flow to the Firm approach. B. Build a spreadsheet model and estimate the value per share with the Free Cash Flow to Equity approach.
of sales • Interest expense is $50 million and will increase proportionately with sales • Depreciation expense is $100 million and will increase proportionately with sales • Gross investment in plant and equip will be 40% of the increase in sales • New investment
in working capital will be 20% of the increase in sales • New borrowing each year will be 50% of the increase in net plant and equipment and 50% of the increase in working capital • The corporate income tax rate is 25% • The before-tax cost of long-term debt
is 5.0% • The equity beta is 0.96, risk-free rate is 2.0%, and equity risk premium is 6% • The firm’s capital structure is 25% debt and 75% equity • Outstanding long-term debt is $1,100 million • There are 140 million outstanding shares A. Build a spreadsheet
model and estimate the value per share with the Free Cash Flow to the Firm approach. B. Build a spreadsheet model and estimate the value per share with the Free Cash Flow to Equity approach.
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