HELP with an Economy case please
NoName PLC Spanish stock exchange Co.
It has 7,000,000 shares and the market price at the beginning of year 1 is €15.
Information:
EBITDA: 10,500,000
Amortization: 650,000
EBIT: 9,850,000
Financial Expenses: 1,000,000
EBT: 8,850,000
Taxes: 2,212,500
BAT: 6,637,500
EBIT increase of 12% per annum is expected over the next 5 years
Amortization and depreciation planned for next 5 years are going to be constant €650,000/year
An investment of €800,000 annually is expected to buy, maintain the equipment and buildings. Capital used in it’s the day to day trading operations (working capital) is going to be an annual amount of €1,000,000
Company gets a 10 years bank loan with an annual interest rate of 7% (nominal cost of debt). So, the company finances its business with 40% debt and the remaining 60%, with Equity
The risk-free rate, currently is 4%. Investments in similar businesses are offering a yield of 9%, market rate
Company´s share has a Beta of 1.2 in relation to the IBEX35
From 5 years on, stable Free Cash Flow growth of 2% is expected
Total debt is €30,000,000 and corporate tax rate is 25%
QUESTIONS:
- Calculate the projected Free Cash Flows for next 5 years
- Calculate the Discount Rate needed to apply (WACC) and the real cost of debt (tax shield)
- Discount all projected FCFs using the WACC calculated above in order to get the Enterprise Value.
- Calculate the Company Value and company´s share value. What is the potential increase in the share price?
