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"You are required to perform valuation for HES Company as given below.

Show detail work and discuss any assumptions you make.

Consider HES Company's financial statements given below. Assume the Company's beta is estimated to be 1.5, risk free rate 2%, and market risk premium 10%. Furthermore, assume the company has a long-term growth rate for 2% after the fifth year and net income and comprehensive income will be identical.

What is the company's value using the following methods:

a) Residual Income, Value to Book, Free Cash Flow to Equity, Free Cash Flow to Company (FCF, Debt and Equity)

c) If Owners decide to issue 1,000,000 common shares, how much would be the value for each share?

d) Analyze and explain which one of the above valuation methods provides a better and more realistic valuation. "

Need to be able to review all calculations so nothing can be hard coded in excel without an accompanying note to explain how the number was derived.?

Income Statement
  Year 1 Year 2 Year 3 Year 4 Year 5
Revenues $1,976,000 $2,074,800 $2,178,540 $2,287,467 $2,401,840
Cost of Sales 1,213,659 1,274,342 1,338,059 1,404,962 1,475,210
Gross Profit $762,341 $800,458 $840,481 $882,505 $926,630
           
Accounting 6,000 6,300 6,615 6,946 7,293
Advertising & Promotion 15,000 12,360 12,731 13,113 13,506
Bank Charges 41,496 43,571 45,749 48,037 50,439
Compensation & Benefits 246,643 254,042 261,663 269,513 277,598
Consulting Fees 2,400 0 0 0 0
Insurance 1,000 1,050 1,103 1,158 1,216
Lease - Facilities 336,000 336,000 336,000 336,000 336,000
Legal & Professional 500 500 500 500 500
Licenses & Fees 500 510 520 531 541
Maintenance 600 612 624 637 649
Miscellaneous 1,800 1,836 1,873 1,910 1,948
Office supplies 2,700 2,754 2,809 2,865 2,923
Security 720 742 764 787 810
Telephone 1,800 1,836 1,873 1,910 1,948
Utilities 4,200 4,410 4,631 4,862 5,105
Website 1,800 1,800 1,800 1,800 1,800
  Total Operating Exp. 663,159 668,323 679,255 690,569 702,276
EBIDTA $99,182 $132,135 $161,226 $191,936 $224,354
Depreciation 4,916 4,916 4,916 4,916 4,916
Operating Profit $94,266 $127,219 $156,310 $187,020 $219,438
Interest Expense 43,199 40,274 37,059 33,524 29,639
Earnings Before Taxes 51,067 86,945 119,251 153,496 189,799
Income Taxes 17,873 30,431 41,738 53,724 66,429
Net Income $33,194 $56,514 $77,513 $99,772 $123,370

Balance sheets
  Begin Year 1 Year 2 Year 3 Year 4 Year 5
Cash $33,150 $110,697 $210,697 $243,259 $293,834 $363,370
Inventory 425,000 425,000 424,781 446,020 468,321 491,737
Prepaid Leases 28,000 28,000 28,000 28,000 28,000 28,000
  Total Current Assets $486,150 $563,697 $663,478 $717,279 $790,155 $883,107
             
Fixed Assets 33,850 33,850 33,850 33,850 33,850 33,850
Less:  Depreciation 0 4,916 9,832 14,747 19,664 24,579
Net Fixed Assets 33,850 28,934 24,018 19,103 14,186 9,271
Total Assets $520,000 $592,631 $687,496 $736,382 $804,341 $892,378
             
Accounts Payable 0 68,908 139,654 146,637 153,968 161,667
Long Term Debt 468,000 438,529 406,133 370,522 331,377 288,346
Total Liabilities 468,000 507,437 545,787 517,159 485,345 450,013
Owner's Equity            
  Paid-in Capital 52,000 52,000 52,000 52,000 52,000 52,000
  Retained Earnings 0 33,194 89,709 167,223 266,996 390,365
Total Liabilities & Equity $520,000 $592,631 $687,496 $736,382 $804,341 $892,378

Cash Flow Statements
  Year 1 Year 2 Year 3 Year 4 Year 5
Operating Profit $94,266 $127,219 $156,310 $187,020 $219,438
Add:  Depreciation 4,916 4,916 4,916 4,916 4,916
  99,182 132,135 161,226 191,936 224,354
Working Capital Investment -68,908 -70,966 14,256 14,968 15,719
Cash From Operations 168,090 203,101 146,970 176,968 208,635
Interest Expense 43,199 40,274 37,059 33,524 29,639
Income Taxes 17,873 30,431 41,738 53,724 66,429
Net Cash Before Debt Pmt 107,018 132,396 68,173 89,720 112,567
Debt Payment 29,471 32,396 35,611 39,145 43,031
Change in Cash $77,547 $100,000 $32,562 $50,575 $69,536
           
Cash Reconciliation          
Beginning Cash $33,150 $110,697 $210,697 $243,259 $293,834
Change in Cash 77,547 100,000 32,562 50,575 69,536
Ending Cash $110,697 $210,697 $243,259 $293,834 $363,370

Attachment:- problem-set.rar

Corporate Finance, Finance

  • Category:- Corporate Finance
  • Reference No.:- M91908758

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