M16-03-CapitalCashFlowModel

Model16-03CapitalCashFlowModel(ExpectedAssetReturnUsingCAPM)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)11.85%11.85%11.85%11.85%11.85%11.85%16.Discountfactor0.894050.799330.714650.638930.5712417.Presentvalues481$448$401$355$328$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-ExpectedAssetReturnInputsPartIV-ValuationCalculation(a)Risk-freerate(Rf)6.00%(1)PVofcashflows2,013$(b)Assetbeta(ba)=bU0.900(2)PVofterminalvalue3,091$(c)Riskpremium(RP)6.50%(3)OperatingValue(V)5,104$(d)Taxrate(T)40.00%(4)Add:Marketablesecurities-(5)Totalvalue5,104$PartII-ExpectedAssetReturnCalculation(6)Less:Initialbookdebt(D)2,000ka=Rf+(RP)ba(7)Valueofequity3,104$=6.0%+6.5%(0.900)=11.85%(8)Sharesoutstanding100.0(9)Intrinsicshareprice31.04$PartIII-TerminalValue(TV)TV=CapitalCashFlowsn+1/(ka-g)PartV-Ratios=479/(0.1185-0.03)=479/0.0885=5,411$OperatingValue/Revenues01.02PVTV=TV/(1+ka)nOperatingValue/NOI010.21=5411x0.57124=3,091$OperatingValue/EBITDA06.81