Calaveras Vinesyard Case

For the purpose of calculating the net present value of the project, an appropriate cost of capital has to be calculated at which free cash flows of the project should be discounted. Since the project will be solely financed by selling new shares, cost of equity will be used as the discount rate. Beta for the company can be assumed to be equal to average of the betas of the competitors of the company. This average beta value comes out to be 1.2. Risk free rate is 0.17% while risk premium has been estimated to be 6%. Thus by putting these values in CAPM formula, we can find the cost of equity for the company which is 7.39%.

Here is a rundown of the variables we used to first determine the cash flows for Years 0 through 10: depreciation of equipment over the 10 years, sales minus COGS to identify gross profit, summed expenses (advertising, start-up, and Jell-o erosion only; the test market expense in Year 1 is considered a sunk cost and thus should not be included), and subtracted taxes to come up with the cash flow. When assessing the below issues, the team concluded the following

Before moving forward to compute the present value of these cash flows, a terminal value is required to forecast the long term value of the company after 5 years. . Following formula is used to calculate the terminal value.

E. Cindy and Rob estimate that the market value of the common equity in the venture is $900,000 at the end of 2010. The market values of interest-bearing debt are judged to be the same as the recorded book values at the end of 2010. Estimate the market value-based weighted average cost of capital for Castillo Products.

Our estimated cost of capital, 20.81%, is lower than Ricketts’ expected return, 30%-50%, thus the investment is worthy. However, it’s higher than other pessimistic members’ expected return, 10%-15%, making the decision more complex and requiring further valuation。

5) In late December 1995, sell-side analysts were forecasting long-term growth of 25-40% for the craft-brewing segment. How achievable are these growth targets? What factors are likely to influence analysts’ growth

The next step was to calculate the free cash flows for the eleven-year period. In order to do so, we used to following formula: FCF = EBIT(1-tax) + depreciation - change in NWC – CapEx. From here, we used to WACC of 13.89% previously calculated, in order to find the present value of each FCF.

Solutions to Valuation Questions 1. Assume you expect a company’s net income to remain stable at $1,100 for all future years, and you expect all earnings to be distributed to stockholders at the end of each year, so that common equity also remains stable for all future years (assumes clean surplus). Also, assume the company’s β = 1.5, the market risk premium is 4% and the 20-30 year yield on risk free treasury bonds is 5%. Finally, assume the company has 1,000 shares of common stock outstanding. a. Use the CAPM to estimate the company’s equity cost of capital. • re = RF + β * (RM – RF) = 0.05 + 1.5 * 0.04 = 11% b. Compute the expected net distributions to stockholders for each future year. • D = NI – ΔCE = $1,100 – 0 = $1,100 c. Use the

Is the management of Valley Winery doing an acceptable job of hiring and training qualified employees?

The Corporate Finance course has helped me, as a student, gain intelligence to make informed decisions upon analyzing the details for Sunflower Nutraceuticals (SNC). These decisions will influence the company’s overall growth annually. In addition to various details of the SNC Company I have also made various decisions in each of the phases of SNC’s simulation which has an estimated values to figure out the results. This paper also explains how SNC’s decisions are influenced with regards to the working capital followed with the final step of evaluating the general affects associated with the limited

The measuring of future cash flows from the company was determined through a suitable pre-tax discount rate in order to calculate present value. The company also made assumptions about the future sales, vend-in of restaurants to Royalty Pool, tax rates, and terminal growth rates, by brand, which were based on historical experience and expected future performance ("Pizza Pizza Annual Report",2015).

This process is complicated by the fact that while some of the assets of a firm have already been made, and are thus assets-in-place, a significant component of firm value reflects expectations about future investments. Thus, to value a firm we need to measure not just the cash flows from investments already made, but also estimate the expected value from future growth. In the following section, we will consider some of the basic principles that should guide our estimates of cash flows, growth and discount rates. 1 . Cash Flow to the Firm The cash flow to the firm that we would like to estimate should be both after taxes and after all reinvestment needs have been met. Since a firm includes both debt and equity investors, the cash flow to the firm should be before interest and principal payments on debt. The cash flow to the firm can be measured in two ways. One is to add up the cash flows to all of the different claim holders in the firm. Thus, the cash flows to equity investors (which take the form of dividends or stock buybacks) are added to the cash flows to debt holders (interest and net debt payments) to arrive at the cash flow. The other

Cash-flow budget serves multiple purposes, the cash flow budget provides an overview of the cash inflows and outflows during a period. The first step in the construction process is identifying and timing the cash inflow. The principal purpose of the statement of cash flows is to provide relevant information about a company 's cash receipts and cash payments during a particular accounting period. Which is useful for answering questions such as How much cash did the firm generate from operations? • How did the firm finance fixed capital expenditures? • How much new debt did the firm add? • Was the cash from operations sufficient to finance fixed asset purchases. (Kuratko, D. F. (2009). Entrepreneurship: Theory, process, practice (8th ed.). Mason, Ohio: Cengage.) It should be remembered that entrepreneurs make assumptions to explain how numbers are derived, and they correlate these assumptions with information presented in other parts of the business operations. The set of assumptions on which projections are based should be clearly and precisely presented; without these assumptions, numbers will have little

The demand of wine in the world will never go down, so huge profits can be made if the wine is exported to the targeted places. [Jackson S. Ronald, 2008]

The topic of this research paper will be about the capital structure of Coca Cola, This paper serves as a comparison of debt and equity. It will help determine the true value of the company while also determining what their free cash flow is and the risk level for the organization. The question that this research will try to answer is if the 125 year old company is financially ready for another 125 years. The company needs to remain liquid and keep its operating costs low during times of inflation. The methodology that will be used will be multiple financial ratios to determine how the organization