Case Study Of Kandagiri Spinning Mills

Free Cash Flow = Sales Revenues – Operating Costs and Taxes – Required Investments in Operating Capital. Weighted Average Cost of Capital (WACC) is affected by market interest rates, market risk aversion, cost of debt, cost of equity, firm’s debt/equity mix, and firm’s business risk. Therefore, free cash flows and the weighted average cost of capital interact to determine a firm’s value by the following equation:

Such criteria may include: profit; cost; return on investment (ROI); market share; capacity; risk; and / or, cash flow, to name a few. Qualitative criteria may include: competitive advantage; customer satisfaction; employee morale; corporate image; ease of implementation; synergy; ethics; safety; and / or goodwill, to name a few. There may be other criteria that the Learner / group have determined are essential to the decision making process. Ensure that the criteria chosen are clearly articulated and described.

10. What is the correct capital structure and weighted average cost of capital for discounting the investment’s free cash flow. Assume a 35% tax rate. A correct response requires that you define capital structure and Weighted Average Cost of Capital (WACC) with a formula. When defining a term with a formula be sure that all the variables are also defined.

Answer: WACC covers computation of SIVMED’s cost of capital in which each category of capital is proportionately weighted. All capital basis - common stock, preferred stock, bonds or any other long-term borrowings – should be listed under SIVMED’s WACC. We determine WACC by multiplying the cost of the corresponding capital component by its proportional weight and then adding: where: Re is a cost of equity Rd is a cost of debt E is a market value of the firm's equity D is a market value of the firm's debt V equals E + D E/V is a proportion of financing that is equity

1. Determine the Weighted Average Cost of Capital (WACC) based on using retained earnings in the capital structure.

Discounted cash flow analysis in Exhibit 12 We do not know the beta for Interco’s equity. Therefore, it is not possible for us to estimate the weighted average cost of capital (WACC) for Interco. Note that here WACC method is appropriate because Interco is not

Moreover, let’s calculate the Weighted Average Cost of Capital (WACC). And in order to calculate it we need to know the capital structure of the company. Knowing the capital structure of the

The free cash flow method is used to gauge “a company’s cash flow beyond that necessary to grow at the current rate… [to ensure companies] make capital expenditures to continue to exist and to grow” (Drake, n.d.). Calculation of free cash flows utilizes various components, including a firm’s value, cash flow forecasts, a firm’s capital structure, the cost of capital, and/or discounted cash flows.

5. A complete analysis of the company’s financial statements for a minimum of the most recent three years of available data including a comparison of the company's ratios to most recent year’s peer company average ratios. Complete the ratio calculations yourself. Do not copy them from another source.

company’s securities, both debt and equity. The WACC is important to calculate because it is a necessary

c. Is your estimate of Lex’s cost of equity appropriate as a discount rate for Lex’s total operating cash flows? Why or why not?

The above formula isolates free cash flows to the firm from earnings before interest and tax (EBIT). It can be noted that FCFF are after tax (1-T) but prior to interest expense. This initial overstatement of due tax is by design; the tax deductibility of interest payments will be accounted for when incorporating the after-tax cost of debt in the weighted average cost of capital (WACC) to determine the present value of free cash flows.

The Board of the Company consists of 11 (eleven) Independent Directors and 2 (two) Inside Directors. They have expertise in the areas of business, finance, law, audit and public companies.

Q2: Use the FCF Valuation Template below to modify the analysis in the case, Ex. 6 (incorrectly labeled Ex. 5), calculating and defending an estimate of Crocs value. Soln: The preferred method to determine a company’s going-concern value by adjusting for risk and time. Simply put, the value of equity = value of firm – value of debt. So to find the intrinsic or fair values of Crocs, the forecast numbers from exhibit 6 were plugged into the provided template and appropriate entries from the balance sheet and income statement were entered. Assumptions: The depreciation and amortization amounts, capital expenditures were pulled directly from exhibit 6 assuming them to be incremental. Other assumptions include the discount rate at 10.96%, the long-term growth at 6%, and market value of debt as zero and no redundant assets. The firm will have perpetual growth after 4 years at a rate of 6%. The free cash flows along with terminal value calculated are listed below:

Q1. Using the Mabati Rolling Mills Case Study, explain the various sources of funds as discussed by the management of Mabati Rolling Mills. Give the advantage and disadvantage of each source.