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FINC 423 Financial Models Fall 2021 Project Corporate Valuation of Management Initiatives Project Objective Management wants you to evaluate the corporate value impact on several initiatives that are part of their long-range planning

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FINC 423 Financial Models Fall 2021 Project

Corporate Valuation of Management Initiatives

Project Objective

Management wants you to evaluate the corporate value impact on several initiatives that are part of their long-range planning. You will build a financial model for the calculations, report, and presentation slide deck.

Your assignment is to:

1. Evaluate the corporate value for the base forecast. What is the intrinsic value of the firm? Have Tables and Graphs for the report and presentation slide deck.
2. Evaluate the sensitivity of the corporate value to assumptions in the perpetual growth and cost or equity capital. Have Tables and Graphs for the report and presentation slide deck.

 

3. Revise the base forecast as follows:

 

Planners expect better sales growth and lower operating expense growth as per the table with some plant upgrades.

 

	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6	Year 7
Revenue growth	10%	10%	9%	9%	8%	6%	4%
Operating expense growth	8%	8%	7%	7%	6%	4%	2%

 

 

But it will require more expensive equipment that will increase the capital expenditures to 8% of revenues.

 

Evaluate the corporate value for this consideration. Have Tables and Graphs for the report and presentation slide deck.

 

Does this case with the more expensive equipment increase the intrinsic value of the firm?

 

4. Return to the base forecast and consider the following:

 

Management wants to be debt-free by Year 7, but management would also like to increase the dividend payout ratio. If the first priority is to pay off the long-term debt, Can the dividend be increased and still achieve the goal of being debt free by Year 7?  If so, when could the dividend be increased and by how much?

 

Have Tables and Graphs for the report and presentation slide deck to evaluate the potential debt payout / dividend increase.

 

 

Some Details

1. On the Pro Forma Forecasts tab
2. Complete the Pro Forma Forecast for the base assumptions
3. Depreciation expenses are to be held at 2% of sales.
4. In this problem, assume that the interest expense is based on the AVERAGE of the beginning period long term debt and end of period long term debt.
5. The A/R turnover, Inventory turnover, and A/P turnover is to be held constant at the year zero ratios.
6. Use the solver to eliminate the DFN with the following optimization:
   1. Management will not issue any new stock
   2. Management wants to minimize long term debt and even pay off the debt if possible.
   3. Management will keep the cash level at $10,000 unless all the long term debt is paid.
   4. You will need to run the solver to eliminate the DFN for each year.
7. After balancing the proforma statements compute the Free Cash Flows. A technical note on the free cash flow calculation. The designation that some cash is “excess cash” indicates that that excess cash should be subtracted from the current assets in the calculation of net operating working capital. 
8. On the DCF tab, first complete the WACC calculations.  Although it NOT BEST PRACTICE, you may use the balance sheet weights in the capital structure. Note the cost of debt is the interest rate on long term debt.    Link the results from the pro forma financials to the DCF calculations.  Compute the Terminal Value.  Compute the present value of operations, the value of equity and the intrinsic share price.
9. Evaluate the sensitivity of the corporate value to assumptions in the perpetual growth and cost or equity capital use using Excel’s DataTables. Graph the intrinsic value sensitivity to perpetual growth and cost of equity capital.
10. In addition, (at the minimum) graph the following on a Dashboard

Revenues, Net Income, dividends, and free cash flow over time

A profitability waterfall graph

A combination chart with long term debt balance on 1 y axis and excess cash on a 2^nd y axis with years on x axis

Any other graph that would support your analysis.

11. Repeat the above analysis for the scenario with the plant upgrades
12. Repeat the above analysis for the scenario with the dividend analysis
13. Report  Requirements

 

 

 

Project Report must have

• Title page
• Executive summary with
  • Solutions to analysis
  • Key highlights
  • Managerial Recommendations
• Main Topics include
  • Base Case Forecast Analysis
  • Discussion of sensitivity analysis
  • Discussion of scenarios
• Appendix with 1page dashboard printout for
  • Base Forecast
  • Plant Upgrades
  • Dividend Analysis

Presentation Slide Deck 6 Slides Maximum

2 slides Corporate value for the base forecast. What is the intrinsic value of the firm

2 slides Does this case with the more expensive equipment increase the intrinsic value of the firm?

2 slides Can the dividend be increased and still achieve the goal of being debt free by Year 7?  If so, when could the dividend be increased and by how much?