No. 2: La Pizza della Nonna Corporation, S.A. It is in the process of selling shares in the Roman market to achieve an expansion of its business throughout the Italian nation. To do this, the president of the company, Mr. Giuseppe Pomodoro, and his wife, Ms. Alessandra Tiramisú, have hired him to help them determine the value range of the Corporation, using the discounted cash flow method. The information available for this assessment was collected by the Financial Manager, the MBA Giacomo Pizza and is detailed below: • Sales for the next three years in units: 42,750; 37,500 and 65,000. • Unit price: in euros of year 1: € 17.65 • Inflation of income: according to Sales Manager Giancarlo Panetone it is 12% per year. • Cost of sales: 37.5% of sales. • Fixed operating costs are in the order of € 10,450.00 • Operating expenses: 2.75% of sales. • Cost inflation according to the Production Manager Ing. Chiara Gelatti is 9.5% per year. • The company must contribute a working capital of € 5,000.00. This investment must be recovered at the end of the third year. • Income tax rate: 30%. The capital goods tax rate is 16%. • The Corporation has a fixed asset acquired 2 years ago for 165,000, which is depreciated by the sum method of 95,000.00. • The economy minister Don Massimo Picasso projected global inflation at 13%. • The initial investment of this project consists of the following concepts: Detail Unit quantity Unit cost Purchase of land (m2) 500.00 50.00 Construction 675.00 225.00 Import of 2 ovens FOB 1,500.00 Freight 10% Insurance 5% Nationalization expenses 20% Installation costs 687.50 FOB Vehicles 3 987.50 Freight 10% Insurance 5% Nationalization expenses 9% • The total investment will be financed 47.5% over a 3-year term at 12% annual interest the first year and then at 10%. This loan is paid under the fixed installment modality. In addition, the Manager of Human Resources and Strategic Planning, Vanessa Arrivederci has provided the following information: o Number of employees of the Corporation: 245 employees. o Beta Coefficient. 0.85 times. o Risk-free rate: it is estimated that 20-year treasury bills pay 6.75% per year. o Premium for risk of investment in shares: 7.85% You are asked to determine, explain and interpret: a) The weighted cost of capital according to the risk premium approach methodology. The total cost of capital. b) Market value of the company, according to the discounted cash flow method at the end of the third year.
No. 2: La Pizza della Nonna Corporation, S.A. It is in the process of selling shares in the Roman market to achieve an expansion of its business throughout the Italian nation. To do this, the president of the company, Mr. Giuseppe Pomodoro, and his wife, Ms. Alessandra Tiramisú, have hired him to help them determine the value range of the Corporation, using the discounted cash flow method. The information available for this assessment was collected by the
• Sales for the next three years in units: 42,750; 37,500 and 65,000.
• Unit price: in euros of year 1: € 17.65
• Inflation of income: according to Sales Manager Giancarlo Panetone it is 12% per year.
• Cost of sales: 37.5% of sales.
• Fixed operating costs are in the order of € 10,450.00
• Operating expenses: 2.75% of sales.
• Cost inflation according to the Production Manager Ing. Chiara Gelatti is 9.5% per year.
• The company must contribute a working capital of € 5,000.00. This investment must be recovered at the end of the third year.
• Income tax rate: 30%. The capital goods tax rate is 16%.
• The Corporation has a fixed asset acquired 2 years ago for 165,000, which is
• The economy minister Don Massimo Picasso projected global inflation at 13%.
• The initial investment of this project consists of the following concepts:
Detail Unit quantity Unit cost
Purchase of land (m2) 500.00 50.00
Construction 675.00 225.00
Import of 2 ovens FOB 1,500.00
Freight 10%
Insurance 5%
Nationalization expenses 20%
Installation costs 687.50
FOB Vehicles 3 987.50
Freight 10%
Insurance 5%
Nationalization expenses 9%
• The total investment will be financed 47.5% over a 3-year term at 12% annual interest the first year and then at 10%. This loan is paid under the fixed installment modality.
In addition, the Manager of Human Resources and Strategic Planning, Vanessa Arrivederci has provided the following information:
o Number of employees of the Corporation: 245 employees.
o Beta Coefficient. 0.85 times.
o Risk-free rate: it is estimated that 20-year treasury bills pay 6.75% per year.
o Premium for risk of investment in shares: 7.85%
You are asked to determine, explain and interpret:
a) The weighted cost of capital according to the risk premium approach methodology. The total cost of capital.
b) Market value of the company, according to the discounted cash flow method at the end of the third year.
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