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BB Inc. Valuation Excel Exercise 2007

This document outlines the steps for valuing BB, Inc. at the end of 2007, building upon previous financial analysis. Key tasks include projecting free cash flow (FCF) from 2008 to 2015, determining optimal capital structure, and calculating the weighted average cost of capital (WACC). The final goal is to compute the firm's value and determine the maximum price for its equity.

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Danijela Blažević
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5 views1 page

BB Inc. Valuation Excel Exercise 2007

This document outlines the steps for valuing BB, Inc. at the end of 2007, building upon previous financial analysis. Key tasks include projecting free cash flow (FCF) from 2008 to 2015, determining optimal capital structure, and calculating the weighted average cost of capital (WACC). The final goal is to compute the firm's value and determine the maximum price for its equity.

Uploaded by

Danijela Blažević
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

BB, Inc.

– Part 2

An Excel Exercise in Model Building, FCF and Valuation

We will continue the Excel exercise from BB, Inc. – Part 1. We will focus on valuing BB Inc. at the end of
2007. The financial ratios we computed in the BB Inc Part I are in the "Ratios" tab and the FCF from 2008
to 2012 we computed are in the "Valuation" tab. Below are the steps for this valuation exercise.

1) Project BB’s FCF from 2008 to 2012 (You did this already in BB, Inc. Part 1)
2) Project FCF for a few more years, say 2013 to 2015, to figure out when FCF growth stabilizes. To
project these FCFs use the same historical financial ratios as in question 1 and the additional
assumptions listed on the “Assumptions” tab.
3) Calculate the optimal capital structure by following these steps
a. Estimate the market value of operations (Enterprise Value EV) using the firms current
Net Debt and Market value of equity. (information to estimate the market value of
equity is in the “Assumptions” tab)
b. Estimate OPMRWC by analyzing the historical data from 2003 to 2007. Multiply this by
sales in the current year (2007) to estimate EBITRWC
c. Set interest target minimum coverage in the realistic worst case scenario (“h”) to 2
d. Calculate the maximum interest that you would recommend for the firm in 2007
e. Use the information on debt ratings and associated yields to compute rD Use this and
your answer from (d) to estimate the optimal level of net debt ND*
f. Calculate the optimal capital structure as ND*/EV
4) Compute the WACC using information on comparables and the optimal capital structure from
question 3
5) Compute the residual value by using the perpetuity with growth method and the competitive
market benchmark
6) Calculate the value of the firm
7) What is the maximum amount you would be willing to pay today for the equity of the firm?

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