Problem 13-10 Corporate Valuation

a. If operating capital as of 12/31/2010 is $502.2 million, what is the free cash flow for 12/31/2011?

Net Operating Working Capital = (Cash +A/R+ Inventories)

NOWC = 5.60 +56.2 +112.4 = 174.20

Net Plant and Equipment = (A/P +Accruals) = (11.20 + 28.10) = 39.30

Operating Capital= (NOWC – NPE)
174.20 - 39.30= 134.90

Total Operating Capital=(Operating Capital + NPE Projected (Given)
134.90 + 397.50 =532.40

Change in Operating Capital= (Total Oper. capital – Operating Capital as of Dec, 2010 Given)

532.40 - 502.20= 30.20

FCF= 65.16 - 30.20

FCF=$34.96

b. What is the horizon value as of 12/31/2011?
WACC = 11%
Growth rate = 6%

Horizon value = 34.96 +(1 +.06) = 37.06
37.06 / (.11-.06)

= $741.15

c. What is the value of operations as of 12/31/2010?
Value of operations in 2010= FCF + Horizon Value
34.96 + 741.15

= $776.11

d. What is the total value of the company as of 12/31/2010?
Value in prior year
741.15 + 41.95
=699.20 (Value in 2009 + Mark. Sec.)
699.20+49.90
= $749.10 (Value in 2010)

e. What is the intrinsic price per share for 12/31/2010?
Value of Equity=Value of company in 2010 – (Notes payable + Long Term bonds)-Preferred Stock 749.10-(69.90+140.80)-35.00
= 503.40

Price per share= 503.40/10 (# of shares)
=