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  3. problem 1 enterprise value 19 marks mutiny holdings ltd achieved...

Question: problem 1 enterprise value 19 marks mutiny holdings ltd achieved...

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Problem 1: Enterprise Value (19 Marks) Mutiny Holdings Ltd achieved sales of $300 million in 2017. Analysts expect Mutiny Holdings Ltds sales to grow at 10% pa. in 2018 but this growth will slow by 1% pa. to a long-run growth rate of 5% pa. by 2023 . EBIT is expected to be 10% of sales, increases in net working capital requirements to be 8% of any increase in sales, and net investment (capital expenditures in excess of depreciation) to be 7% of any increase in sales. Mutiny Holdings Ltd has $40 million in cash, $60 million in long-term debt, and 12 million shares outstanding. Assume a tax rate of 30% and a weighted average cost of capital of 15% Mutiny Free Cash Flows: ($ millions) 2017 2018 2019 2020 2021 2022 2023 Sales Growth versus prior year EBIT (10% of Sales) Less Income Tax (30% EBIT) Less Net Investment (7% Sales) Less: Inc. in NWC (8% Sales) FREE CASH FLOW 300 330.0 359.7388.5 415.7 440.6 462.6 10.00% | 9.00% | 8.00% | 7.00% | 6.00% | 5.00% 33.0 36.0 38.8 41.6 44.1 46.3 10.811.712.5 13.2 13.9 1.5 1.8 18.6 20.722.9 25.0 27.1 29.1 9.9 2.1 2.4 2.0 1.9 1.7 2.4 2.3 2.2 2.0 A. Using the free cash flow forecast and the assumed long-term growth rate of 5% pa after year 2023, calculate Mutiny Holdings Ltds terminal enterprise value in year (4 marks) (6 marks) C. What is your estimate of the value per share of Mutiny in early 2018?(3 marks) D. What is your estimate of Mutinys stock value per share in part (c) above if the free cash flow at the end of year 2018 is $18.6 million and such free cash flow will grow (6 marks) 2023 B. Calculate current Mutinys enterprise value. by 5% pa. from year 2018 onwards?

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