Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Financial Ratios
A Ratio refers to a figure calculated as a reference to the relationship of two or more numbers and can be expressed as a fraction, proportion, percentage, or the number of times. When the number is determined by taking two accounting numbers derived from the financial statements, it is termed as the accounting ratio.
Return on Equity
The Return on Equity (RoE) is a measure of the profitability of a business concerning the funds by its stockholders/shareholders. ROE is a metric used generally to determine how well the company utilizes its funds provided by the equity shareholders.
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
Transcribed Image Text:Below you will find the operating cash flows (Free Cash Flow) for ABC Corp. The company
has a 11% weighted average cost of capital. Assuming that you are using an exit multiple
approach to analyze ABC Corp, what is the Enterprise Value using an exit multiple of 7
(EV/EBITDA = 7x)?
Dollars in millions
Sales
-Cash COGS and SG&A
EBITDA
-Tax basis D&A
Operating Income
-Taxes
Net Operating Profit After Taxes
+Depreciation & Amortization
-Capex for PP&E
-Working Capital Changes
Operating Cash Flow
Cost of Capital
Present Value of Cash Flows
$879.16 million
$921.69 million
$904.77 million
$924.61 million
2023
500
400
100
14.1
85.9
21.48
64.43
14.1
17.2
2.2
59.13
Projected FYE 12/31
2024
560
448
112
16.2
95.8
23.95
71.85
16.2
19.26
2.46
66.32
2025
627.2
501.76
125.44
18.4
107.04
26.76
80.28
18.4
21.58
2.76
74.34
2026
702.46
561.97
140.49
20.6
119.89
29.97
89.92
20.6
24.16
3.09
83.26
2027
786.76
629.41
157.35
18.4
138.95
34.74
104.21
18.4
27.06
3.46
92.09
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