Finance Simulation: M&A in Wine Country
Valuation Exercise
Note:
This exercise is designed to help you determine the value of the assigned enterprise. Use assumptions supplied in the Foreground Reading and in the spreadsheet to
estimate free cash flows, a WACC, and terminal values for Bel Vino Corporation and Starshine Vineyards.
Complete the valuation exercise and submit to your instructor as directed.
EQUIPO
MARY ANNE MARTINEZ ZAPATA
GIANINNA MENDOZA
M&A in Wine Country
Bel Vino Base Case Valuation: Expanded
<=History Pro Forma =>
Operating Forecasts 2010 2011 2012 2013 2014 2015 2016 2017 Pro forma assumptions
US Sales 330 328 330 332 333 335 337 338 0.5% annual growth
International Sales 29 32 36 41 46 52 59 66 13.0% annual growth
Net Sales 359 360 366 372 379 387 395 405
Cost of Goods Sold 160 150 140 141 144 147 150 154 38.0% of sales
Depreciation 24 9 9 25 24 23 23 22 20.0% of beginning net PP&E
Marketing Expense 23 24 24 26 27 27 28 28 7.0% of sales
Other SG&A 107 108 111 112 114 116 119 121 30.0% of sales
EBIT 45 69 82 68 71 73 76 79
Supplementary Schedules
Net Working Capital
working cash 10 10 10 10 11 11 11 11 2.8% of sales
A/R 98 99 100 102 104 106 108 111 100 days sales outstanding
Inventory 310 291 272 274 280 285 291 298 708 days of COGS
Other CA 7 7 7 7 8 8 8 8 2.0% of sales
A/P 90 90 90 69 70 72 73 75 90 days of cash op expenses
Net working capital 335 317 299 325 332 338 346 354
NWC 26 6 7 7 8
Other assets 45 45 45 47 47 48 49 51 12.50% of sales
Other assets 2 1 1 1 1
Beginning net PP&E 144 140 132 126 121 117 113 111
Capital Expenditures 20 20 20 20 20 20 20 20 given
Depreciation 24 28 26 25 24 23 23 22 20% of beginning net PP&E
Ending Net PP&E 140 132 126 121 117 113 111 109
Free Cash Flow Calculation Pro Forma =>
2013 2014 2015 2016 2017 WACC Calculation
EBIT 68 71 73 76 79 Asset beta 0.82
EBIT(1-t) tax rate = 40% 41 42 44 46 47 Risk-free rate 4.86%
Depreciation 25 24 23 23 22 Market Risk Premium 5.00%
Capital expenditures 20 20 20 20 20 Cost of debt 6.00%
NWC 26 6 7 7 8 Target D/V 35% E/E+D 65%
Other assets 2 1 1 1 1
Free cash flow 18 40 40 40 40 41.45 Implied debt beta
Terminal value Perp. g = 3% 751 growing perpetuity
Re-levered equity beta 1.26
Discount factor 18 40 40 40 791 Cost of equity 0.11
PV(FCF + TV) WACC 8.52%
PV Enterprise 636
Less EOY 2008 Debt 301
Estimated Equity Value 335
number of shares (000,000s) 10
Value per share $ 33.49
Para apalancar:
Bu = Be* (E/E+D)
Be = Bu*(E+D/E)
Be = Bu/(E/E+D)
Be = 1.26
Ke =Rf +Be(Rm - Rf)
Ke = 0.11
M&A in Wine Country
Starshine Base Case Valuation: Expanded
<=History Pro Forma =>
Operating Forecasts 2010 2011 2012 2013 2014 2015 2016 2017 Pro forma assumptions
US Sales 250 255 265 276 287 298 310 322 4.0% annual growth
International Sales 225 240 260 281 303 328 354 382 8.0% annual growth
Net Sales 475 495 525 556 590 626 664 705
Cost of Goods Sold 200 205 230 244 258 274 291 309 43.8% of sales
Depreciation 40 55 46 39 33 29 25 22 20.0% of beginning net PP&E
Marketing Expense 52 53 53 56 59 63 66 70 10.0% of sales
Other SG&A 148 152 152 161 171 181 193 204 29.0% of sales
EBIT 35 30 44 57 68 79 89 99
Supplementary Schedules
Net Working Capital
working cash 40 30 21 22 24 25 27 28 4.0% of sales
A/R 175 179 181 192 204 216 229 243 126 days sales outstanding
Inventory 250 262 271 287 304 323 343 364 430 days of COGS
Other CA 33 34 34 36 38 41 43 46 6.5% of sales
A/P 83 85 86 91 96 102 108 115 136 days of COGS
Net working capital 415 419 422 447 474 502 533 566
NWC 25 27 29 31 33
Other assets 24 24 24 26 28 29 31 33 4.7% of sales
Other assets 2 2 2 2 2
Beginning net PP&E 307 277 232 195 166 143 124 110
Capital Expenditures 10 10 10 10 10 10 10 10 given
Depreciation 40 55 46 39 33 29 25 22 20% of beginning net PP&E
Ending Net PP&E 277 232 195 166 143 124 110 98
Free Cash Flow Calculation Pro Forma =>
2013 2014 2015 2016 2017 WACC Calculation
EBIT 57 68 79 89 99 Asset beta 0.82
EBIT(1-t) tax rate = 40% 34 41 47 54 60 Risk-free rate 4.86%
Depreciation 39 33 29 25 22 Market Risk Premium 5.00%
Capital expenditures 10 10 10 10 10 Cost of debt 6.00%
NWC 25 27 29 31 33 Target D/V 27% E/E+D
Other assets 2 2 2 2 2 73%
Free cash flow 36 36 36 36 37 38 Implied debt beta
Terminal value Perp. g = 3% 676 growing perpetuity
Re-levered equity beta 1.12
Discount factor 36 36 36 36 713 Cost of equity 0.10
PV(FCF + TV) WACC 8.62%
PV Enterprise 589
Less EOY 2008 Debt 235
Estimated Equity Value 354
number of shares (000,000s) 8.0 Bu = Be* (E/E+D)
Be = Bu*(E+D/E)
Value per share $ 44.19 Be = Bu/(E/E+D)
Be = 1.12
Ke =Rf +Be(Rm - Rf)
Ke = 0.10
