- 50 -
approach, determini ng a $720,926,00017 aggregate equity value for
J.R. Simplot Co. on the valuation date.
17 Dr. Spiro's calculations (in millions) were as follows:
(We note that mathematically his calculations are slightly off.)
8/31/94 8/31/95 8/31/96 8/31/97 8/31/98
Net income $59,900 $70,033 $80,908 $92,329 $96,133
Cash-flow
adjustments:
(+)depreciation 75,097 81,104 86,782 91,989 96,588
(-)Capital
Expenditures (96,278) (103,980) (111,259) (117,934) (123,831)
(-)Working
capital
additions (20,669) (20,026) (18,924) (17,356) (15,331)
Free cash-flow 18,051 27,131 37,506 49,027 53,559
Discount rate 10.20%
Present value
factor 0.9526 0.8644 0.7844 0.7118 0.6459
Present value
of cash-flow 17,195 23,453 29,421 34,899 34,595
Total present
value of cash-
flows 139,563
Present value
of reversion 956,900 Reversion cash-flow: $80,8021
Business
enterprise
value 1,096,462
Less total
long-term
debt as of
5/31/93 375,536
Aggregate equity
value-liquid
minority
basis 720,926
1 Dr. Spiro explained that the discounted cash-flow model projects
cash-flows independently for 5 years. However, the business is expected to
generate cash-flows after the 5th year of the forecast. The present value of
the cash-flows that the business is expected to generate after the 5th year
or, equivalently, the present value of the reversion, is calculated using the
Gordon Model formula (or Dividend Discount Model).
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