Hi,
Please read carefully.
There are 2 attachments.
1st attachment is the actual HW.
2nd attachment is from theProfessor to show you the solution - there are 3 TABS in the solution.On thesolution, Professor using TAX Rate of 35% ( The actual HW using 21%).
1.The actual Home Work Solutions should be 3 TABS.
2.Please answer short question is in the actual Home work as well. preferably stated in actual Home Work solution (no need separate attachment).
Thank you
TV Homework Template Please answer the following question: 1. What percentage the Present Value of Terminal Value contributes to the total Enterpise value? 2. How sensitive is your valuation inputs? You may use the template attached or create your own. Excel submission is enough. Enterprise Valuation & Terminal Value GivenSolution Legend Gross Margin40%Value given in problem Fixed Costs$ 2,000Formula/Calculation/Analysis required Revenue Growth Rate for Years 1 - 510%Crystal Ball Input FCF Steady Growth3%Crystal Ball Output Discount Rate12% Year 1 Revenue$ 5,000 Tax Rate21% Terminal Year5 12345 Revenues Gross profits Fixed Costs Net Operating Income Taxes Free Cash Flow NPV for Years 1-5 Cash Flows Terminal Value (as of Year 5) PV of Terminal Value Enterprise Value PV of Terminal Value / Enterprise Value ( ) s g WACC FCF TV - = 6 5 s gWACC FCF TV 6 5 TV Homework Example - Enterprise Valuation & Terminal Value GivenSolution Legend Gross Margin40%Value given in problem Fixed Costs$ 2,000Formula/Calculation/Analysis required Revenue Growth Rate for Years 1 - 510%Crystal Ball Input FCF Steady Growth3%Crystal Ball Output Discount Rate12% Year 1 Revenue$ 5,000 Tax Rate35% Terminal Year5 12345 Revenues$ 5,000$ 5,500$ 6,050$ 6,655$ 7,321 Gross profits2,0002,2002,4202,6622,928 Fixed Costs(2,000)(2,000)(2,000)(2,000)(2,000) Net Operating Income$ -$ 200$ 420$ 662$ 928 Taxes$ -$ (70)$ (147)$ (232)$ (325) Free Cash Flow$ -$ 130$ 273$ 430$ 603 NPV for Years 1-5 Cash Flows$ 914<-- =npv(wacc,d21:h21)="" terminal="" value="" (as="" of="" year="" 5)="" $="" 6,905=""><-- =h21*(1+steadygrowth)/(wacc-steadygrowth)="" pv="" of="" terminal="" value="" $="" 3,918=""><-- =c24/(1+wacc)^c12="" enterprise="" value="" $="" 4,832=""><-- =c23+c25 pv of terminal value / enterprise value81% data for charts: terminal value / enterprise valueinput variabledownsideupsiderangedownsideupsidebase case discount rate83%79%4%11%13%12% fcf steady growth80%83%3%2%4%3% revenue growth rate for years 1 - 581%81%0%9%11%10% terminal value / enterprise value variable10.0%30.0%50.0%70.0%90.0% discount rate83%82%81%80%79% fcf steady growth80%80%81%82%83% revenue growth rate for years 1 - 581%81%81%81%81% sensitivity chart terminal value / enterprise value discount rate0.10.30.50.70.90.828875788685892730.819820092798028920.810882865239624940.802062305704276390.79335664534524186fcf steady growth0.10.30.50.70.90.796214703928354580.803510437142714310.810882865239624940.818333203967813730.82586269490817532revenue growth rate for years 1 - 50.10.30.50.70.90.81023068168799350.810557356740788990.810882865239624940.811207208250141920.81153038690566726percentiles of the variables tornado diagram terminal value / enterprise value downside11% 2% 9% discount ratefcf steady growthrevenue growth rate for years 1 - 50.828875788685892730.796214703928354580.8102306816879935upside13% 4% 11% discount ratefcf steady growthrevenue growth rate for years 1 - 50.793356645345241860.825862694908175320.81153038690566726 =c23+c25="" pv="" of="" terminal="" value="" enterprise="" value="" 81%="" data="" for="" charts:="" terminal="" value="" enterprise="" value="" input="" variable="" downside="" upside="" range="" downside="" upside="" base="" case="" discount="" rate="" 83%="" 79%="" 4%="" 11%="" 13%="" 12%="" fcf="" steady="" growth="" 80%="" 83%="" 3%="" 2%="" 4%="" 3%="" revenue="" growth="" rate="" for="" years="" 1="" -="" 5="" 81%="" 81%="" 0%="" 9%="" 11%="" 10%="" terminal="" value="" enterprise="" value="" variable="" 10.0%="" 30.0%="" 50.0%="" 70.0%="" 90.0%="" discount="" rate="" 83%="" 82%="" 81%="" 80%="" 79%="" fcf="" steady="" growth="" 80%="" 80%="" 81%="" 82%="" 83%="" revenue="" growth="" rate="" for="" years="" 1="" -="" 5="" 81%="" 81%="" 81%="" 81%="" 81%="" sensitivity="" chart="" terminal="" value="" enterprise="" value="" discount="" rate="" 0.1="" 0.3="" 0.5="" 0.7="" 0.9="" 0.82887578868589273="" 0.81982009279802892="" 0.81088286523962494="" 0.80206230570427639="" 0.79335664534524186="" fcf="" steady="" growth="" 0.1="" 0.3="" 0.5="" 0.7="" 0.9="" 0.79621470392835458="" 0.80351043714271431="" 0.81088286523962494="" 0.81833320396781373="" 0.82586269490817532="" revenue="" growth="" rate="" for="" years="" 1="" -="" 5="" 0.1="" 0.3="" 0.5="" 0.7="" 0.9="" 0.8102306816879935="" 0.81055735674078899="" 0.81088286523962494="" 0.81120720825014192="" 0.81153038690566726="" percentiles="" of="" the="" variables="" tornado="" diagram="" terminal="" value="" enterprise="" value="" downside="" 11%="" 2%="" 9%="" discount="" rate="" fcf="" steady="" growth="" revenue="" growth="" rate="" for="" years="" 1="" -="" 5="" 0.82887578868589273="" 0.79621470392835458="" 0.8102306816879935="" upside="" 13%="" 4%="" 11%="" discount="" rate="" fcf="" steady="" growth="" revenue="" growth="" rate="" for="" years="" 1="" -="" 5="" 0.79335664534524186="" 0.82586269490817532="">