GXMBA CORPORATE FINANCE Final Exam Assignment -
NiseFood Corporation is analyzing the possibility to acquire KradFood Corp. Kradfood earnings have been under pressure in recent years, thanks to the change in consumer behavior. Consumers are more willing to pay an extra price for healthier food, and at the same time are reducing the consumption of fast food. Nisefood Corp is exposed to the growing segment of the food industry, while Kradfood is focus on un-healthy food.
Nisefood expects to improve Kradfood distribution channel, using its existing distribution network, restructuring production facilities from un-healthy food to healthy food and to reduce operating costs in the process.
There is enough room to grow the acquired company (Kradfoods) sales by 12% per year during the next 4 years, and then reduce the growth rate to 6% per year until year 10. Growth at perpetuity is estimated to be 5%.
The EBITDA Margin will also improve by 2.75% of sales thanks to the synergies in the distribution channel and the manufacturing operating efficiencies. The acquirer expects the NWK to be reduced by 0.07% of sales (per year) from 2017 level in years 2108 to 2020 and then to grow at 0.04% (per year) as percentage of sales from 2021 onwards (20121 included).
The depreciation expense will be stable as percentage of sales during the forecast period.
Capital Expenditure will be increased by 0.30% per year as a percentage of sales during the first three years (2018 to 2020), but will come back to the 2017 level as a percentage of sales from 2021 onwards.
The tax rate is expected to be stable at 30%.
Please find the P&L and Balance Sheet of Kradfoods Corp in the Excel attached, save time and use that information for your calculations.
Using the information given in attached file:
1- Calculate the projected FCF
2- Value KradFoods Corp using a DCF analysis. What is its' EV? What is the Value of its' Equity?
3- Value KradFoods Corp using several Market Multiples. The multiples to be used must be derived from the information given for comparable companies table above.
4- Value the company using the fundamental P/E ratio and EV/EBITDA ratio.
5- Now, assume that KradFoods Corp managers do not want to sell the company to a competitor and to keep their jobs the y decide to buy out the company using some money they have saved, and more importantly a Venture Capital (VC) that will finance the deal.
The VC will sell its equity stake in five years and will get a total of $15m (expected value in year 5 to get the expected total return of 21% in their investment, the balance return will come in the form of undisclosed interest income).
Please calculate the percentage of the company that will have to be given to the VC by the managers in exchange for its financial resources. Please use the multiples calculated before to value the company as a reference for the calculation of the "Exit Multiple" for the VC.
Please work all your calculations in the Excel given, and answer the questions above both quantitatively and qualitatively (if you think there is room to make comments).
Please send the Excel and the PPT to assignments.
Attachment:- Assignment File.rar