M16-02-CapitalCashFlowModel

Model16-02CapitalCashFlowModel(ExpectedAssetReturnUsingCAPMandWeightedAverage)Year0Year1Year2Year3Year4Year5=nYearn+1PanelA–InputsforPresentValueCalculations1.Netrevenues5,000$5,400$5,832$6,299$6,802$7,347$7,567$2.Revenuegrowthrate8.0%8.0%8.0%8.0%8.0%3.0%3.NOI=EBIT500$540$583$630$680$735$605$4.Cashtaxrate(T)40.0%40.0%40.0%40.0%40.0%40.0%40.0%5.Incometaxes2002162332522722942426.NOPAT300$324$350$378$408$441$363$7.+Depreciation2502702923153403672658.–Changeinworkingcapital505458636873389.–Capitalexpenditures1001081171261361477610.–Changeinotherassetsnet5054586368737611.Freecashflows350$378$408$441$476$514$439$12.Interestexpense400$380$300$200$150$100$13.Interesttaxshield160$152$120$80$60$40$14.Capitalcashflow(CCF)(11+13)538$560$561$556$574$479$15.Discountrate(ka)10.70%10.70%10.70%10.70%10.70%10.70%16.Discountfactor0.903340.816030.737150.665900.6015417.Presentvalues486$457$413$370$345$PanelB–OperatingRelationships(Asa%ofRevenues)NOI10.0%10.0%10.0%10.0%10.0%10.0%8.0%NOPAT6.0%6.0%6.0%6.0%6.0%6.0%4.8%Depreciation5.0%5.0%5.0%5.0%5.0%5.0%3.5%Changeinworkingcapital1.0%1.0%1.0%1.0%1.0%1.0%0.5%Capitalexpenditures2.0%2.0%2.0%2.0%2.0%2.0%1.0%Changeinotherassetsnet1.0%1.0%1.0%1.0%1.0%1.0%1.0%Freecashflow7.0%7.0%7.0%7.0%7.0%7.0%5.8%PanelC–ValuationCalculationsPartI-ExpectedAssetReturnInputsPartIII-TerminalValue(TV)(a)Risk-freerate(Rf)6.00%TV=CapitalCashFlowsn+1/(ka-g)(b)Assetbeta(ba)=bU0.723=479/(0.107-0.03)=479/0.077=6,219$(c)Riskpremium(RP)6.50%(d)Taxrate(T)40.00%PartIV-ValuationCalculation(e)Costofequity(ke)12.50%(1)PVofcashflows2,072$(f)Before-TaxCostofdebt(kb)8.00%(2)PVofterminalvalue3,741$(g)TargetEquity(S)toValue(V)60.0%(3)OperatingValue(V)5,814$(h)TargetDebt(B)toValue(V)40.0%(4)Add:Marketablesecurities-(5)Totalvalue5,814$PartII-ExpectedAssetReturnCalculation(6)Less:Initialbookdebt(D)2,000UsingCAPM(7)Valueofequity3,814$ka=Rf+(RP)ba(8)Sharesoutstanding100.0=6.0%+6.5%(0.723)=10.70%(9)Intrinsicshareprice38.14$UsingWeightedAveragePartV-Ratioska=ke(S/V)+kb(B/V)OperatingValue/Revenues01.16=12.50%(0.600)+8.00%(0.400)=10.70%OperatingValue/NOI011.63OperatingValue/EBITDA07.75