# Cost Accounting Proof Reading Services

## 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

= 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

= 90.845 : 47

### Chapter 11:

Method 1

= 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

= (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 onmarketvalue offirm. Global Review of Accounting and Finance Vol. 5. No. 2. September 2014. Pp. 56 – 63

3.Ivanovski, Z., Ivanovska, N. andNarasanov, Z., 2014. Fundamental analysis anddiscoiuntedfree 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.