MF20 Enunciados Ejercicios complementarios Sping 15EMBA Exercises PDF

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Download MF20 Enunciados Ejercicios complementarios Sping 15EMBA Exercises PDF

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Estrategia Financiera EXERCISES Carmen Ansotegui & Jes´ us Palau ESADE Business School EMBA 2015

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Exercises 1. A company is analyzing an investment project. The project requires an initial investment of e500 million and it is planed to last for three years. The initial investment is 300 in CAPEX and 200 in Working Capital (WC). The initial investment will be amortized equally during the life period of the project, 100 every year. The Working Capital’ needs are forecast as 15% over next year sales. Sales and EBITDA forecast are presented below. The tax rate is 30%. Dividends will not be paid during the life of the project, in the next three years. The funding of the project is e290 million Equity and e210 million of a syndicated loan. The cost of the loan will be 5%. Debt repayment is planned to be e70 million every year, such that at the end of the third year all debt is canceled. Notice, for simplicity calculations, we will assume Working Capital’ needs in a given year equal 15% of sales next year. The project design will allow us to recover total Working Capital in year three, the last year of the investment project. With the above conditions, the Balance Sheet for the base year is as follows: Balance Sheet year base Net Fixed Assets Working Capital Total Net Investment

year 300 200 500

Equity Financial Debt Capital Employed

290 210 500

and the sales and EBITDA expected for the next three years are as follows: P& L year base year +1 +2 +3 Sales 1,333.33 2,000 2,666.67 EBITDA 120 150 170 With the available information, you are requested to:

C. Ansotegui & J. Palau - ESADE

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EMBA Spring

Exercises (a) Calculate P&L and the Balance Sheet for the next three years (the project’s life). For calculation purposes interest are assumed to be paid over debt outstanding at the end of the previous year. (b) Calculate Free Cash Flow to the Firm for the next three years. (c) Calculate Free Cash Flow to the Equity for the next three years. (d) Calculate Internal Rate of Return for shareholders. 2. Assess whether you agree with the following statement: For a firm with no debt, the ratio of market value to book value is approximately equal to one. Justify your answer! 3. Under which conditions would a firm be worth less than its book value? (Note: g ≡ growth rate in net investments) (a) If ROCE0; (b) If ROCE>WACC and g=0; (c) If ROCE 250 : The bank will not grant you debt of more than 250.

However, you have the alternative to get additional funds as Equity. You could include the Marketing Director as a new Stockholder. You think he could contribute with an additional amount of equity of 25 monetary units, as maximum. In this case your could be three equity holders, with a total amount of 105 monetary units as Equity. As before, you have the possibility to get additional funding from the bank. (a) What is the price Mr. Zubinatxi will accept? (b) What would be the optimal funding of the purchase? (c) Will you invite the Marketing Director to participate in the purchase?

C. Ansotegui & J. Palau - ESADE

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EMBA Spring...