7. Jack has found a really cheap small cap food stock that markets snacks. It has 9 mm shares outstanding, a share price of $10, 40 mm in debt, minority interest worth 10mm and 10 mm in cash. It has a cost of debt of 10%. It expects to generate 30 mm in EBITDA, operating cash flow of 20 mm and 10 mm in capital expenditures in the upcoming year. Please show your calculations.
1. Calculate the market cap of the company?
2. Calculate the enterprise value or firm value of the company?
3. What is the free cash flow yield(free cash flow to equity)? What are two basic credit metrics you can calculate with these numbers(hint coverage ratio and one other). Please calculate these two ratios.
4. What it the EV/EBITDA? Why do we use this metric? If it traded on average at 10X EV/EBITDA the last five years but has a new high margin product being launched, would this look like a cheap multiple all else being equal?
5. If the generator company has a beta of 1.5, the equity risk premium is 6% and the risk free rate is 3%, what is its cost of equity?
6. If its tax rate is 30%, calculate the WACC or weighted average cost of capital.
7. Calculate the discounted cash flow value using the WACC assuming free cash flow to the firm(unlevered) of $15, 19,21, with a 2.5% terminal growth rate beginning in year 4.