that delivers weekly boxes of ready-to-eat meals, straight to
customer’s doorstep. A team of investors is currently considering
whether to invest in Simple Feast. You, as a prominent member of
Simple Feast’s corporate finance division, are asked to calculate
the fair value of the outstanding equity. In order to calculate the
fair value, you have made the following forecasts (all in
million):
- The Company Simple Feast Is An Organic Plant Based Food Company That Delivers Weekly Boxes Of Ready To Eat Meals Strai 1 (81.3 KiB) Viewed 59 times
depreciation to grow by 5%, interest expenses to grow by 4%,
capital expenditures to stay constant and net working capital to be
760.
Assume that the first cash flow in column “2022” comes in one
year from now, that the annualized growth rate in free cash flow
from 2025 is 3% and that net working capital in 2021 is 500
million.
Assume the following information: The risk free rate is 2%, the
market risk premium is 5%, the equity beta is 1.5 and the debt cost
of capital is 4%. The firm has net debt of 2500 million, 125
million shares outstanding and targets a constant net debt to total
firm value of 50%. The corporate tax rate is 25%.
State additional assumptions if needed and answer the following
questions:
1. Calculate the free cash flows.
2. Calculate the expected return on equity using CAPM.
3. Calculate the after-tax weighted average cost of capital
(WACC).
4. Estimate firm value using a DCF valuation.
5. Estimate the value of the interest tax shield.
6. Assume that the investors are willing to pay 20 per share.
According to your estimates, what would you recommend the existing
owners do?
7. Imagine that the risk free rate, the market risk premium and
the equity beta was not given. Explain how each of these could have
been obtained/approximated.
Forecast Sales Cost of goods sold EBITDA Depreciation EBIT Interest expenses Earnings before taxes Taxes Net income 2022 1055.00 740.00 315.00 50.00 265.00 130.00 135.00 33.75 101.25 2023 1160.00 810.00 350.00 75.00 275.00 135.00 140.00 35.00 105.00 2024 1240.00 870.00 370.00 100.00 270.00 145.00 125.00 31.25 93.75 Capital expenditures Increase in net working capital 50.00 50.00 50.00 60.00 50.00 75.00