Assignment 3 – valuation using the perpetual growth method, value multipliers and cap rates
Part 1. Calculating capitalization rates
In this part, you calculate capitalization rates (“cap” rates) and value multipliers used to calculate horizon value, or to estimate current value of a company.
Select a non-financial company for which financial information is available for at least the three most recent years. Obtain financial statements the three most recent years. Use the company’s financial statements, together with other information described, to calculate the values indicated in questions 1-4.
Growing perpetuity based valuation multiplier and cap rate
1a. Estimate a growth rate for the company. Use average growth in any appropriate variable, such as sales (or total revenue), net income, operating income, dividends, etc. Specify how you determine the growth rate.
Valuation multipliers and cap rates based on an operating variable
2a. Select an operating variable for the company (total sales, EBIT, operating cash flow, net income, etc.) from which to calculate a value multiplier
Valuation multipliers and cap rates based on value of an asset
3a. Select an appropriate non-operating, financial variable (total assets, total stockholders equity, net fixed assets, etc.) for the company from which to calculate a value multiplier.
Valuation multipliers and cap rates based on a non-financial asset
4a. Find the number of employees for the company for the most recent fiscal year.
Part 2. Using industry multipliers or cap rates to estimate the market value of a privately held company.
In this part, you use value multipliers and/or cap rates to estimate the current market value of a privately held company (the current value is the horizon value as of time 0).
Data for the private company is attached below.
5a. Use the multiplier from question 1 as a proxy for the industry multiplier to estimate the market value of the private company.
Part 3. Horizon value
|Income Statement (thousands)|
|Cost of Revenue||2144|
|Selling General and Administrative||538|
|Total Operating Expenses||838|
|Operating Income or Loss||308|
|Income from Continuing Operations|
|Total Other Income/Expenses Net||23|
|Earnings Before Interest and Taxes||285|
|Income Before Tax||259|
|Income Tax Expense||104|
|Balance Sheet (thousands)|
|Cash And Cash Equivalents||168|
|Other Current Assets||12|
|Total Current Assets||639|
|Property Plant and Equipment||1266|
|Short/Current Long Term Debt||118|
|Other Current Liabilities||205|
|Total Current Liabilities||499|
|Long Term Debt||518|
|Deferred Long Term Liability Charges||26|
|Other Stockholder Equity||-43|
|Total Stockholder Equity||1449|
Number of employees
|Statement of cash flows (thousands)|
|Adjustments To Net Income||51|
|Changes In Accounts Receivables||12|
|Changes In Liabilities||-11|
|Changes In Inventories||4|
|Changes In Other Operating Activities||-8|
|Total Cash Flow From Operating Activities||290|
|Other Cash flows from Investing Activities||-76|
|Total Cash Flows From Investing Activities||-86|
|Sale Purchase of Stock||-100|
|Other Cash Flows from Financing Activities||0|
|Total Cash Flows From Financing Activities||-228|
|Effect Of Exchange Rate Changes||-12|
|Change In Cash and Cash Equivalents||-36|