You are considering an investment into Company XYZ and need to determine the company's value and the appropriate investment amount. You have been provided with historical financial statements for the past three years in order to build a forecast model. Key assumptions to use include:
1. Future sales revenue is assumed to increase at 2.5% annually.
2. Gross margin for 2021E is assumed to be equal to the average gross margin % for 2019 and 2020, but will decrease by 2.5% (i.e. 250 bps) each year thereafter
3. SG&A expense is assumed to be a percentage of revenue for the forecast period. That percentage is equal to the 2018-2020 average
4. Depreciation expense is assumed to be a percentage of revenue for the forecast period. That percentage is equal to the 2018-2020 average
5. The tax rate for the forecast period is assumed to be equal to the effective tax rate for 2018
6. Capital expenditures for any given year in the forecast period is assumed to be 3x the prior year's depreciation expense. For example, 2021 capital expenditures is equal to 3x 2020 depreciation expense.
7. No new debt or equity is assumed to be issued
Download CFI_-_FMVA_Practice_Exam_Case_Study_A.xlsx and answer the following 12 questions.
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1
What is Gross Profit in 2028E using the assumptions listed above and on the Control Panel?
2
What is EBITDA in 2022E using the assumptions listed above and on the Control Panel?
3
What is Cash Generated From Operating Activities in 2025E using the assumptions listed above and on the Control Panel?
4
What is the PP&E balance in 2030E using the assumptions listed above and on the Control Panel?
5
What is the cash ratio in 2025E using the assumptions listed above and on the Control Panel?
6
What is the margin impact ratio in 2026E using the assumptions listed above and on the Control Panel?
7
What is the cash turnover ratio in 2029E using the assumptions listed above and on the Control Panel? Is it higher or lower than the same ratio in 2020?
8
What is the risk-free rate?
9
Based on a discounted cash flow analysis and using the WACC as the discount rate, what is the implied equity value of Company XYZ on January 1, 2021?
10
What is the implied equity value at the transaction date (June 15, 2024) based on a discounted cash flow analysis using the WACC as the discount rate, and assuming $50 million of cash and zero debt?
11
Assuming an investment is made on June 15, 2024 in an amount equal to 1.5x the equity value at that date, what is the investor IRR?


12
Assuming an investment is made on June 15, 2024 in an amount equal to 1.5x the equity value at that date, what is the equity IRR if the investment is funded with 70% debt?