15-What is the Present Value (at December 2016) of the Free Cash Flows forecast
ID: 2620143 • Letter: 1
Question
15-What is the Present Value (at December 2016) of the Free Cash Flows forecast for Corporation Y if the firm where not to do the expansion?
16-What is the Present Value (at December 2016) of the Continuation Value forecast for Corporation Y if the firm where not to do the expansion?
17-What is the Present Value (at December 2016) of the Interest Tax Shield forecast for Corporation Y if the firm where not to do the expansion?
18-What is the estimated Firm Value (at December 2016) for Corporation Y if the firm where not to do the expansion?
19-Considering that the Firm Value for Corporation Y (at December 2016) if the firm where to do the expansion is estimated at $502519159. What is the Net Present Value of the investment expansion?
20-According the NPV, Corporation Y should do the expansion.
True
False
Use the following information on Company Y for ultimately estimating the net present value of the expansionary investment and answers questions (15)-(20). Consider the following forecasts for 2017-2021 of the Future Cash Flows, EBITDA and Future Interest Tax Shield for Company Y if the expansion were not to occur. Assume that the EBITDA Multiple for the industry Company Y belongs to is 9.95. Assume a discount factor of 9% for the Free Cash Flows and for the Continuation Value, and a discount factor of 5% for the Interest Tax Shield. *Hint: You have sufficient information to calculate the Interest Tax Shield Firm Value 2017 2018 2020 2021 Free Cash Flow of Firm 26,820,76930,500,33232,639,864 34,929,16337,378,712 EBITDA 61,229,798Explanation / Answer
Soln : 15 ) Please refer the table here :
We can see the present value of Cash flows in 2016 = 124519990.9
16) Present value of continuation value forecast = 61229798/1.09^5 = 39795167.50
17) Interest tax shiedl values are not given, i.e. interest values and tax rate also not given, else we can calculate it here by using the discount factor for 5%, instead of 9% taken in cash flows , please multiply each year value with :
in respective years.
18) As it has been given that EBITDA multiple of industry is given as 9.95 is defined as Enterprise value(EV)/EBITDA
Firm value in this case in the year 2021 = 9.95 * EBITDA = 9.95*61229798 = 609236490.10
Firm Value in the year 2016 = Add the present value of cash flows and EBITDA and multiply with EBITDA multiple
= (124519990.9 + 39795167.50) *9.95 = 1634935826
Firm Value 2017 2018 2019 2020 2021 Free cash flows of firm 26820769 30500332 32639864.00 34929163 37378712 Discount rate 9% Discount factor 0.92 0.84 0.77 0.71 0.65 PV 24606210.09 25671519.23 25203963.77 24744699.67 24293598.11 NPV 124519990.9Related Questions
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