e Deadline is Apr 3 Tuesday. Submit your hardcopy in These questions are designe
ID: 2508576 • Letter: E
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e Deadline is Apr 3 Tuesday. Submit your hardcopy in These questions are designed to develop students' ability to make strategic decision. Students will have opportunities to integrate knowledge about corporate-level strategy with analytical skills learned from finance classes 1-3. Free Cash Flow; WACC, NPV (3 questions) 2014 2015 2016 2017 2018 2019 2020 M&A; Revenue EBIT+After Tax Capital Expenditure Dep. & Amortization Net Working Capital Change Free Cash Flow 142343 152235 106364 144978 186152 205309 213635 4522 4225 2214 3214 3621 4314 5835 1577 1823 1088 1657 2606 2395 3123 437 575 622 1026 1066 1045 1087 0 4808 6090 1539903 1689 1758 3382 7785 -4342 1044 1178 Other information Your Investment in Acquisition $2,000 in 2018 Capital Structure $120% from Bank; $800 from Investors Interest Rate 5% Cost of Equity-10% Corporate Tax Rate-35%Explanation / Answer
Requirement 1 2019 2020 Revenue 205309 213635 EBIT+After tax 4314 5835 Capital expenditure 2395 3123 Dep & Amortization 1045 1083 Net working capital changes 1689 1758 Free Cash flow 1275 2037 Requirement 2 Calculation of weighted average cost of capital Cost of borrowing =1200*5%*(1-0.35) 39 Cost of equity =800*10% 80 Weighted average cost of capital =(39+80)/(1200+800)% 5.95 Requirement 3 The net present value of the firm to be acquired Free cash flows Amount PVIF@5.95% Present Value 2018 2000 1 -2000 2019 1275 0.94384143 1203.40 2020 2037 0.89083665 1814.63 Total Net present value 1018.03 We will accept the deal as the net present value of the firm is positive Requirement 4 & 5 Actual free cash in 2019 & 2020 2019 2020 Cash flow 1000 1000 Actual free cash flows 980.39 980.39 The net present value of the firm to be acquired Free cash flows Amount PVIF@5.95% Present Value 2018 1 2019 980.39 0.94384143 925.33 2020 980.39 0.89083665 873.37 Present value of investment 1798.70 As per Chegg Policy, we are supposed to answer maximum of four sub-part of a question. Thank You
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