| FREE-CASH-FLOW VALUATION OF EQUITY |
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| Assumptions: |
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| PERIOD |
2011 |
2012 |
2013 |
2014 |
2015 |
2016 |
| YEAR |
0 |
1 |
2 |
3 |
4 |
5 |
| Profit from operations (EBIT) |
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
| Income tax rate |
|
0.0% |
0.0% |
0.0% |
0.0% |
0.0% |
| Depreciation & amortization expense |
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
| Net working capital from balance sheet forecast |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
| Capital expenditures |
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
| Long-term growth rate |
|
|
|
|
|
0.0% |
| Wt-Avg. C of C (K-wacc) |
0.0% |
|
|
|
|
|
| Market Value of Debt |
0.0 |
|
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|
|
|
| Number of Shares |
0.0 |
|
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|
|
|
| Redundant Assets |
0.0 |
|
|
|
|
|
| PERIOD |
2011 |
2012 |
2013 |
2014 |
2015 |
2016 |
| YEAR |
0 |
1 |
2 |
3 |
4 |
5 |
| EBIT after tax (EBIAT) |
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
| + Depreciation |
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
| =Cash Flow from Operations (CFFO) |
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
| +/- Change in Net Working Capital |
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
| +/- Capital Expenditures |
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
| =Free Cash Flow (FCF) |
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
| +Terminal Value (TV) |
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#DIV/0! |
| =Sum of FCF + TV |
|
0.0 |
0.0 |
0.0 |
0.0 |
#DIV/0! |
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| Present Value |
#DIV/0! |
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| - Market Value of Debt |
0.0 |
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| = Valuation of Equity |
#DIV/0! |
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| +Redundant assets |
0.0 |
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| =Adjusted Value of Equity |
#DIV/0! |
|
|
|
|
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| / Number of Shares |
0.0 |
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| Value of Equity per Share |
#DIV/0! |
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Q 1: Prepare a succinct statement describing Robertson Tool's business risk, making critical judgments.
Q2: Based on both free cash flow valuation and market multiples valuation, what is the maximum price that Monmouth can pay for Robertson? (Determine value using both models.) Explain fully.
Q3: Case Exhibit 5 shows a forecast of Monmouth's earnings per share. If Monmouth wants to avoid diluting the eps figures in this exhibit, calculate the maximum number of new shares that it can issue to Robertson's shareholders to accomplish the acquisition. HINT: Do this by combining the net income of both companies, solving for the number of shares that results in the target eps amount, then consider the number of shares of Monmouth already outstanding.
Q4: How will the Robertson shareholders react to the results of the analysis in Q3? Explain.
Q5: Considering all of the above, Q1-4, recommend and justify a price for this deal.
Q6: Could a private equity firm launch a successful takeover using the LBO model? Explain why or why not.