Chapter 19 Financing and Valuation 499
bre44380_ch19_491-524.indd 499 09/30/15 12:07 PM
PV at year 0 = _____^1
1.09^6× 113.4 = $67.6 millionWe now have all we need to value the business:
PV(company) = PV(cash flow years 1 to 6) + PV(horizon value)
= $20.3 + 67.6 = $87.9 millionThis is the total value of Rio. To find the value of the equity, we simply subtract the value of
the debt:
Total value of equity = $87.9 − 36.0 = $51.9 million❱ TABLE 19.1 Free-cash-flow projections and company value for Rio Corporation ($ millions).
Gross fixed assets
Less accumulated depreciation
Net fixed assets
Net working capitalFixed assets and working capital02134567EBITDA (1– 2)
Depreciation
Profit before tax (EBIT) (3–4)
Ta x
Profit after tax (5–6)Assumptions:PV free cash flow, years 1– 6PV of companyPV horizon value 113.4Sales
Cost of goods soldInvestment in fixed assets
Investment in working capital
Free cash flow (7 + 4 – 8 – 9)Sales growth, %Tax rate, %
WACC, %
Long-term growth forecast, %Costs (percent of sales)
Working capital (percent of sales)
Net fixed assets (percent of sales)
Depreciation (percent of net fixed assets)23.3
9.9
13.4
4.7
8.7109.6
38.9
70.7
11.689.5
66.214.6
0.5
3.57.0
74.079.013.014.024.4
10.6
13.8
4.8
9.0125.1
49.5
75.6
12.495.8
71.315.5
0.8
3.27.0
74.579.013.014.026.1
11.3
14.8
5.2
9.6141.8
60.8
80.9
13.3102.5
76.316.6
0.9
3.47.0
74.579.013.014.026.6
11.8
14.9
5.2
9.7156.8
72.6
84.2
13.9106.6
79.915.0
0.5
5.94.0
75.079.013.014.027.7
12.3
15.4
5.4
10.0172.4
84.9
87.5
14.4110.8
83.115.6
0.6
6.14.0
75.079.013.014.028.2
12.7
15.5
5.4
10.1188.6
97.6
91.0
15.0115.2
87.016.2
0.6
6.04.0
75.579.013.014.0118.7
90.2
28.5
13.1
15.4
5.4
10.015.9
0.4
6.83.0
76.0
13.0
79.0
14.0204.5
110.7
93.8
15.4Latest
Ye ar(Horizon value in year 6)Forecast20.387.967.620.5
3.3
17.2
6.0
11.295.0
29.0
66.0
11.183.6
63.111.0
1.0
2.56.7
75.579.235.0
9.0
3.013.35.01 2 3 4 5 6 7 8 910