You have been hired as a consultant to Kulpa Fishing Supplies (KFS), a company that is seeking to increase its value. The company's CEO and founder, Mia Kulpa, has asked you to estimate the value of two privately held companies the KFS is considering acquiring. But first, the senior management of KFS would like for you to explain how to value companies that don't pay any dividends. You have structured your presentation around the following items.
a. List the two types of assets that companies own.
b. What are assets-in-place? How can their value be estimated?
c. What are non-operating assets? How can their value be estimated?
d. What is the total value of a corporation? Who has claims on this value?
e. The first acquisition target is a privately held company in a mature industry owned by two brothers, each with 5 million shares of stock. The company currently has free cash flow of $20 million. Its WACC is 11%, and the FCF is expected to grow at a constant rate of 5%. The company owns marketable securities of $100 million. It is financed with $200 million of debt, $50 million of preferred stock, and $210 million of book equity.
(1) What is its value of operations?
(2) What is its total corporate value?
(3) What is its intrinsic value of equity?
(4) What is its intrinsic stock price per share?
(5) What is its intrinsic MVA (MVA = total corporate value - total book value of capital supplied by investors)?