VALUATION PROJECT Case Solution

Determine your asset discount rate and the weighted average cost of capital (Ra and Rw).  Describe how you did this below.

The Asset Discount Rate is same as the Equity Discount rate however the only difference is in the beta. The Beta taken for the calculation of the Asset Discount Rate by the CAPM model is equal to 0.84 that is the asset beta of the Apple Inc. The Value of the Asset discount rate is calculated as 5.09 percent.

The Weighted Average Cost of Capital is most commonly used discount rate in order to know the efficient Present Value of a future cash flow. The WACC is calculated by the Formula WACC = ((E/V) * Re) + [((D/V) * Rd)*(1-T)]. The WACC discount rate is termed as most appropriate as it consider both the debt and equity of a company. The WACC for the AAPL (Apple Inc) is calculated as 4.89%.

PART IV: PERFORM THE VALUATION

Determine the asset value of your company using the APV method by filling in the appropriate portion of the spreadsheet.  Write this value below.

Asset Valuation – APV
  2016 2017 2018 2019 Terminal
FCF 7626.1 42605.5 67371.2 54891.0 54892.2
Debt tax shield 394.9 436.3 404.3 420.3 421.5
PV(FCF) 4140.9 12561.7 10785.7 4771.6 2591.0
PV(Tax Shield) 214.4 128.6 64.7 36.5 19.9
 
Asset value 35315.1

 Determine the asset value of your company using the WACC by filling in the appropriate portion of the spreadsheet.  Write this value below.

Asset Valuation – WACC
  2016 2017 2018 2019 Terminal
FCF 7626.1 42605.5 67371.2 54891.0 54892.2
PV(FCF) 7270.5 38725.0 58379.8 45347.4 43233.9
 
Asset value 192956.5

 Value the equity of your company by filling in the appropriate portion of the spreadsheet.  What is your estimate of the equity value of the company?  What is the current market capitalization of the company?  Write these values below.

Equity Valuation
  2016 2017 2018 2019 Terminal
FTE 111183.1 58917.6 60157.1 61287.1 61288.3
PV(FCF) 105998.9 56170.4 57352.1 58429.4 58430.6
 
Asset value 336381.4
Current Market Cap 535300.0

In the spreadsheet, we are forecasting FCF and FTE out four years.  That means you will need to estimate a terminal value for the years thereafter.  Do you think that your company will reach “steady state” in four years?  Do you think terminal value will be reached earlier or later?  Why?

The Terminal years is calculated for the multi years from the year 2020 and thereafter. The Terminal value is calculated to get the potential of a company in order to generate cash flows. The Company is observed to reach its maturity state after 4 years after that the growth is assumed to be declining. The Company is increasing its equity financing rather than the debt financing. The terminal value after four years is assumed as the perfect as the sales of the company would be decreasing afterwards and the cost of sales will be on the rise.

Appendix

Exhibit 1

VALUATIONS  
Asset Value (APV) 35315.1
Asset Value (WACC) 192956.5
Equity value (market cap) 336381.4
Shares outstanding 5753.0
Price per share 58.470612
Current market price 96.98

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