Use Tables 3 and 4 to forecast free cash flow for Reeby Sports from

2004 to 2010. What is the present value of these cash flows in 2003, including PV(terminal value) in 2010?

Free Cash Flow 2004 2005 2006 2007 2008 2009 2010 2011 Terminal

= After-tax profits 5,25 5,70 3,00 3,40 4,35 6,00 7,61 7,60

+ Depreciation 2,40 3,10 3,12 3,17 3,26 3,44 3,68 3,94

- CapEx 4,26 10,50 3,34 3,65 4,18 5,37 6,28 8,50

- Inc. In NWC 1,39 0,60 0,28 0,42 0,93 1,57 2,00

FCF 2,00 -2,30 2,50 2,50 2,50 2,50 3,01 3,04 108,53

NPV(FCF 2004-2010) 8,01

PV(Terminal) 55,69

PV(Total) 63,70

Annual growth rate g is given by following relationship g ✝RE

∙✈1− d ✉ g ✝0,12 ∙✈ 1− 0,40✉ ✝7,2

The terminal value is given by

T ✝

FCFt☞1

kE − g

T ✝

3,04

0,10−*…show more content…*

It would provide an improved basis for the value if multiples from more than one company would be used – if data from other similar companies were available.

Methodology Estimated value (2003) Share Price

DCF 63,70 318,50

DCF(Conservative) 47,01 235,05

P/E 54,84 274,18

P/B 56,74 283,69

Dividend yield 59,99 299,93

The range would then be a price from 235,05 to 318,50 per share. We see that the valuation from the DCF analysis gives the highest price estimate. If Reeby Sport really can outperform its competitor on these ratios is something that we recommend to be further investigated.

The company have issued 200 000 stocks, and the value of a share follows directly from the company value divided by the number of stocks issued.

2 REEBY SPORT*The book value for 2010 is calculated using the following formula

Book valuet

✝Book valuet−1☞ grossinvestments – depreciations

Book value2010✝Book value2003☞ ∑ i✝2003 2010

Grossinvestmentsi – depreciationsi

Book value2010✝63,31

Reeby Sports will have to raise $4.3 million in 2005. Does this prospective share issue affect the per share value of Reeby Sports in

2003? Explain.

We note that the FCF in 2005 is -2,3M and dividends of 2,0M are given to the shareholders. This requires 4,3M in outside equity financing. Whether it is current or new shareholders that contribute with the new equity will not affect the share price differently.

The

2004 to 2010. What is the present value of these cash flows in 2003, including PV(terminal value) in 2010?

Free Cash Flow 2004 2005 2006 2007 2008 2009 2010 2011 Terminal

= After-tax profits 5,25 5,70 3,00 3,40 4,35 6,00 7,61 7,60

+ Depreciation 2,40 3,10 3,12 3,17 3,26 3,44 3,68 3,94

- CapEx 4,26 10,50 3,34 3,65 4,18 5,37 6,28 8,50

- Inc. In NWC 1,39 0,60 0,28 0,42 0,93 1,57 2,00

FCF 2,00 -2,30 2,50 2,50 2,50 2,50 3,01 3,04 108,53

NPV(FCF 2004-2010) 8,01

PV(Terminal) 55,69

PV(Total) 63,70

Annual growth rate g is given by following relationship g ✝RE

∙✈1− d ✉ g ✝0,12 ∙✈ 1− 0,40✉ ✝7,2

The terminal value is given by

T ✝

FCFt☞1

kE − g

T ✝

3,04

0,10−

It would provide an improved basis for the value if multiples from more than one company would be used – if data from other similar companies were available.

Methodology Estimated value (2003) Share Price

DCF 63,70 318,50

DCF(Conservative) 47,01 235,05

P/E 54,84 274,18

P/B 56,74 283,69

Dividend yield 59,99 299,93

The range would then be a price from 235,05 to 318,50 per share. We see that the valuation from the DCF analysis gives the highest price estimate. If Reeby Sport really can outperform its competitor on these ratios is something that we recommend to be further investigated.

The company have issued 200 000 stocks, and the value of a share follows directly from the company value divided by the number of stocks issued.

2 REEBY SPORT*The book value for 2010 is calculated using the following formula

Book valuet

✝Book valuet−1☞ grossinvestments – depreciations

Book value2010✝Book value2003☞ ∑ i✝2003 2010

Grossinvestmentsi – depreciationsi

Book value2010✝63,31

Reeby Sports will have to raise $4.3 million in 2005. Does this prospective share issue affect the per share value of Reeby Sports in

2003? Explain.

We note that the FCF in 2005 is -2,3M and dividends of 2,0M are given to the shareholders. This requires 4,3M in outside equity financing. Whether it is current or new shareholders that contribute with the new equity will not affect the share price differently.

The

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