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FIN 630 Session 6 Assignment




Question;Problem (COUP) went public in 2014. This exercise asks you to forecast the company's free cash flow and discuss risks the company is facing. You may use and modify if necessary the template below or you may create your own template.a) download 2011-2013 historical financial data for the company, using one of the sources listed in Course Content (you may enter numbers in the template below or create your own). I suggest using the SEC Edgar website ( and download S-1 or form 424B from there,b) Based on historical financial data calculate ratios that to be used later in pro-forma financial statements (revenue growth, gross margin etc., see chapter 6 for details),c) Using historical data from a) and ratios from b) create pro-forma statements (see chapter 6 for details),d) Estimate free cash flows FCF for 2014-2017 (see chapters 2 and 6 for details),e) What are risks the company is facing? Discuss, how its tornado diagram would look like (see chapter 3 for details). You don't have to build the diagram itself, unless you want to earn bonus points (5 points maximum),Problem 2Californian start-up Ksenia-Maria considers installing on campus of a well known university in Maryland a communication system, which will compete with various SMS applications and social networks. The management anticipates that new system will have the first year revenues of $375,000 with subsequent annual growth of 3%. Operating costs are 40% of revenues.The project requires $900,000 investment in equipment, which will have a five year anticipated life and will be depreciated using MACRS depreciation method toward a zero book value (MACRS depreciation rates are given below). However, the company will be able to sell the equipment on the after-market at the end of year 5 for 25% of its original cost. The company requires a 12% rate of return from its investment and faces a 38% tax rate (overall the company is profitable). In addition to capital investment, the project requires an outlay of net working capital equal to 10% of revenues in the coming year. I.e., at time 0 (beginning of year 1) net working capital requirement is $37,500 and will grow in subsequent years. All NWC will be recovered after the project's end.a) Calculate the NPV and IRR for the project. Should the company undertake the project? (see chapter 2 for details)b) The marketing and operations department disagree with current projections for operating costs, first year revenues and revenue growth. Considering one factor at a time, at what level of operating costs, initial revenues, and revenues growth the project will break-even (NPV=0)? (see chapter 3 for details)c) Looking at percentage difference between the predicted level and critical (break-even) level of each of the three factors, which of them is the most critical? (see chapter 3 for details)Problem 3LEO Inc. has the balance sheet as shown below. Recently the yield on bonds similar to the ones that company has had increased to 4.25%, so that the market value of the bonds is now about $715 millionThe rate on company' short-term notes is equal the market's rate on these notes, which is 3%.What are the company's enterprise value and capital structure weights?What is the company's cost of equity according to CAPM, if the U.S. T-bond yield is 2.00 %, the long-term market risk premium is 4.5% and the company's levered equity beta is 1.2?What is the company's WACC?


Paper#49546 | Written in 18-Jul-2015

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