Elias Corporation shared the following prospective financial information to a group of private equity investors. You were tasked to compute for the approximate price that should be set if the investor buys out 20% share in Elias Company. 2021 2,250,000 562,500 750,000 937,500 450,000 200,000 287,500 2022 2,750,000 687,500 750,000 1,312,500 550,000 200,000 562,500 2024 3,500,000 875,000 750,000 1,875,000 700,000 200,000 975,000 1,250,000 2023 2025 Revenues Variable Cost of Goods Sold Fixed Cost of Goods Sold Gross Profit Variable Operating Expenses Fixed Operating Expenses Operating Income 3,250,000 812,500 750,000 1,687,500 650,000 200,000 837,500 4,000,000 1,000,000 750,000 2,250,000 800,000 200,000 Other pertinent information can be found below: • Depreciation of P500,000 is included in fixed cost of goods sold while P100,000 of depreciation is charged to fixed operating expenses. • Income tax rate is 20%. • Elias Corporation estimates it will need P200,000 cash on an annual basis to sustain its capital investments. • From 2026 until perpetuity, the corporation estimated net cash flows to grow at a constant rate of 4%. • Elias Corporation has debt-to-equity ratio of 1.5. Pre-tax cost of debt is at 4% while cost of equity is at 9%. • Elias Corporation has outstanding loans of P2,000,000. Compute the following: 1. Weighted average cost of capital 2. Net income from 2021 to 2025 3. Terminal value 4. Net cash flow to the firm 5. Price to pay to buy 20% share in Elias Corporation
Elias Corporation shared the following prospective financial information to a group of private equity investors. You were tasked to compute for the approximate price that should be set if the investor buys out 20% share in Elias Company. 2021 2,250,000 562,500 750,000 937,500 450,000 200,000 287,500 2022 2,750,000 687,500 750,000 1,312,500 550,000 200,000 562,500 2024 3,500,000 875,000 750,000 1,875,000 700,000 200,000 975,000 1,250,000 2023 2025 Revenues Variable Cost of Goods Sold Fixed Cost of Goods Sold Gross Profit Variable Operating Expenses Fixed Operating Expenses Operating Income 3,250,000 812,500 750,000 1,687,500 650,000 200,000 837,500 4,000,000 1,000,000 750,000 2,250,000 800,000 200,000 Other pertinent information can be found below: • Depreciation of P500,000 is included in fixed cost of goods sold while P100,000 of depreciation is charged to fixed operating expenses. • Income tax rate is 20%. • Elias Corporation estimates it will need P200,000 cash on an annual basis to sustain its capital investments. • From 2026 until perpetuity, the corporation estimated net cash flows to grow at a constant rate of 4%. • Elias Corporation has debt-to-equity ratio of 1.5. Pre-tax cost of debt is at 4% while cost of equity is at 9%. • Elias Corporation has outstanding loans of P2,000,000. Compute the following: 1. Weighted average cost of capital 2. Net income from 2021 to 2025 3. Terminal value 4. Net cash flow to the firm 5. Price to pay to buy 20% share in Elias Corporation
Chapter23: Corporate Restructuring
Section: Chapter Questions
Problem 3P
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Transcribed Image Text:Elias Corporation shared the following prospective financial information to a group of private
equity investors. You were tasked to compute for the approximate price that should be set if the
investor buys out 20% share in Elias Company.
2025
3,500,000 4,000,000
875,000 1,000,000
750,000
2021
2,250,000
562,500
750,000
937,500
450,000
200,000
287,500
2022
2,750,000
687,500
750,000
1,312,500
550,000
200,000
562,500
2023
3,250,000
812,500
750,000
1,687,500
650,000
200,000
837,500
2024
Revenues
Variable Cost of Goods Sold
Fixed Cost of Goods Sold
Gross Profit
Variable Operating Expenses
Fixed Operating Expenses
| Operating Income
750,000
1,875,000 2,250,000
800,000
700,000
200,000
200,000
975,000 1,250,000
Other pertinent information can be found below:
• Depreciation of P500,000 is included in fixed cost of goods sold while P100,000 of
depreciation is charged to fixed operating expenses.
Income tax rate is 20%.
• Elias Corporation estimates it will need P200,000 cash on an annual basis to sustain its
capital investments.
• From 2026 until perpetuity, the corporation estimated net cash flows to grow at a
constant rate of 4%.
• Elias Corporation has debt-to-equity ratio of 1.5. Pre-tax cost of debt is at 4% while cost
of equity is at 9%.
Elias Corporation has outstanding loans of P2,000,000.
Compute the following:
1. Weighted average cost of capital
2. Net income from 2021 to 2025
3. Terminal value
4. Net cash flow to the firm
5. Price to pay to buy 20% share in Elias Corporation
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