Cost Accounting OZ Assignments

Cost Accounting OZ Assignments

Cost Accounting OZ Assignments

Chapter 4:

Enterprise Value (EV) can be termed as company’s total value. The formula for calculation of the same is:-

Equity Value can be defined as Value of Outstanding Stock of Company. The formula for Equity Value is

Equity Value = Share price * Common Shares Outstanding

Equity Value for General Mills at beginning of 2006:-

Equity Value = $47 * 369 Million

= $17343 Million

Free cash flow refers to the cash generated by the company. It can be calculated as follows:-

Free Cash flow = Operating Cash flow – Expenses made on capital

a. Free cash flow will remain at 2009 levels after 2009

P0 = D1 / (Ke – g)

Where,

P0 = Value

g = Growth rate

Ke = Expected rate of return shareholder

P0 = 1637 / 0.09

= 18188.889

Enterprise value:-

Year

Cash flow from operation (A)

Cash investment in operations (B)

Free Cash flow
 A-B

PV Factor

Present value

2006

2014

300

1714

0.917

1572.477

2007

2057

380

1677

0.842

1411.497

2008

2095

442

1653

0.772

1276.419

2009

2107

470

1637

0.708

1159.692

After 2009

 

1637

 

18188.000

Enterprise value

 

23608.086

Value Per share = Value of enterprise / Outstanding shares

= 23608.086/ 369

= $63.979

Cost Accounting OZ Assignments= 63.979 : 47

b. Cash flow at 3%

P0 = Cashflow / (Ke – g)

= 1686.11 / (0.09 – 0.03)

= 28101.833

Enterprise value:-

Year

Cash flow from operation (A)

Cash investment in operations (B)

Free Cash flow
 A-B

PV Factor

Present value

2006

2014

300

1714

0.917

1572.477

2007

2057

380

1677

0.842

1411.497

2008

2095

442

1653

0.772

1276.419

2009

2107

470

1637

0.708

1159.692

After 2009

 

1686.11

 

28101.833

Enterprise value

 

33521.919

Value Per share = Value of enterprise / Outstanding shares

= 33521.919/ 369

= $90.845

Cost Accounting OZ Assignments

Cost Accounting OZ Assignments= 90.845 : 47

Chapter 11:

Cost Accounting OZ AssignmentsMethod 1

Cost Accounting OZ Assignments

 = 2740- 147.1 – 3405.9

= $813M

Method 2

Free Cash Flow = Net Operating profit after tax – Net Investment in new operating capital

Cashflow from operation activities

Working Capital

Amount

(Million Dollars)

Operating income after tax

 

2740.10

Adjustments for working capital:-

 

 

- Operating Asset

1260.80

 

+ Operating Liabilities

84.6

(1176.2)

Net Cashflow from Operating activities

 

1563.9

 

Cash flow from investing activities

 

 

Less Financial Assets purchased

111.9

 

Net Cash used from investing

 

(111.9)

 

Cash flow from Financing activities

 

 

+ Borrowed financial obligation

2101

 

Net cashflow from financing activities

 

2101

Net cashflow from operations

 

3553

Assumptions:-

There is no Capital expenditure so Net cashflow from operations will be free cash flow in method 2 of A.

Finance expense is treated as a part of financial obligation

Cost Accounting OZ Assignments

Cost Accounting OZ Assignments

= (2429- 142.4*.634) – 898

= $2429 – 90.28 - 898

= $1440.72M

References

1.PWC, 2014. Valuation of an industrial company Pavia University. PWC. Also available at http://economia.unipv.it/pagp/pagine_personali/ecotta/1415/PRICEWATERHOUSECOOPERS%203.%20VALUATION%20OF%20AN%20INDUSTRIAL%20COMPANY.pdf.

2.Al Zararee, A.N. and Al-Azzawi, A., 2012. The impact of free cash flow on market value of firm. Global Review of Accounting and Finance Vol. 5. No. 2. September 2014. Pp. 56 – 63

3.Ivanovski, Z., Ivanovska, N. and Narasanov, Z., 2014. Fundamental analysis and discoiunted free cash flow valuation of stocks at Macedonian Stock Exchange. UTMS Journal of Economics, 5(1), pp.11-24.

4.Wang, F., Zhu, Z. and Hoffmire, J., 2015, January. Financial Reporting Quality, Free Cash Flow, and Investment Efficiency. In SHS Web of Conferences (Vol. 17). EDP Sciences.