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Sampa Video, HBS Case 9-201-094
Initial Cost $1.5 Million December 2001Free Cash Flow
Forecast
2002 2003 2004 2005
Sales 1200000 2400000 3900000 5600000
EBITD (Rev. less exp.) 180000 360000 585000 840000Less
Depreciation 200000 225000 250000 275000EBIT -20000 135000 335000
565000Taxes 40% 8000 -54000 -134000 -226000EBIAT -12000 81000
201000 339000Depreciation (add back) 200000 225000 250000
275000Operating Cash Flow 188000 306000 451000 614000Less CAP EX
-300000 -300000 -300000 -300000Less Investment in (changes in) NWC
0 0 0 0
Free Cash Flow -112,000.00 6,000.00 151,000.00 314,000.00
Terminal ValuePlanned Debt to Value Ratio B/(S+B) 0.73 This is
the choice variable. When a p
Implied Debt to Equity Ratio B/S 2.703703704Tax Rate 0.4Asset
Beta 1.5 unlevered cost of capitalDebt Beta 0.25 Cost of Debt
capitalEquity Beta 3.53 Cost of (levered) Equity CapitalWACC
0.111864
NPV of FCFsPresent Value of forecasted FCFs - WACC 510,739.44
-989,260.56 Also look at the "discounPresent Value of the Terminal
Value 4,944,224.21 Why is that an important
Total Value 5,454,963.65
Net Present Value 3,954,963.65
Implied Initial Amount of Debt 3,982,123.47Note: the two
valuation methods are not exactly equivalent since the FCF's are
not a level perpetuity
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Sampa Video, HBS Case 9-201-094
Initial Cost $1.5 Million December 2001Free Cash Flow
Forecast
2002 2003 2004 2005
Sales 1200000 2400000 3900000 5600000
EBITD (Rev. less exp.) 180000 360000 585000 840000Less
Depreciation 200000 225000 250000 275000EBIT -20000 135000 335000
565000Taxes 40% 8000 -54000 -134000 -226000EBIAT -12000 81000
201000 339000Depreciation (add back) 200000 225000 250000
275000Operating Cash Flow 188000 306000 451000 614000Less CAP EX
-300000 -300000 -300000 -300000Less Investment in (changes in) NWC
0 0 0 0
Free Cash Flow -112,000.00 6,000.00 151,000.00 314,000.00
Unlevered Terminal Value at 2006Unlevered Cost of Capital
0.158
PV of Forecast period FCFs - rA 417,336.08PV of Terminal Value
2,311,149.00Unlevered Present Value of All FCFs
2,728,485.09Unlevered NPV 1,228,485.09
Planned Level of Debt Financing 1,000,000.00 1,000,000.00
1,000,000.00 1,000,000.00Tax Shields 27,200.00 27,200.00 27,200.00
27,200.00Terminal Value of Tax ShieldsCost of Debt Capital 0.068PV
of Tax Shields - rB 112,125.15
PV of Terminal Value of Tax Shields 287,874.85Total Present
Value of Tax Shields 400,000.00 Note: this is equivalent to the 40%
tax rate tiTotal Net Present Value of Project 1,628,485.09
Total Value of Project 3,128,485.09
Implied Initial Debt to Value Ratio 0.319643525
Interest Payments 68,000.00 68,000.00 68,000.00 68,000.00
