Valuation
Measuring and Managing the Value of Companies
5th Edition
Chapter 10 Solutions
Estimating Continuing Value
Version 1.0
April 1, 2010
Chapter 10
Question 1
Continuing
Today Year 1 Year 2 Year 3 Year 4 Year 5 value Continuing value
Revenues 250.0 265.0 280.9 297.8 315.6 334.6 354.6 NOPLAT
Operating costs (225.0) (238.5) (252.8) (268.0) (284.1) (301.1) (319.2) Growth
Value of operations
Percent
$ million of total
p
Question 2
Continuing
Today Year 1 Year 2 value Continuing value
Discounted cash ow
Value of operations
Percent
$ million of total
Chapter 10
Question 3
Continuing
Today Year 1 Year 2 Year 3 Year 4 Year 5 value Continuing value
Discounted economic pro&t CV
Value of operations
Percent
$ million of total
Chapter 10
Question 4
Continuing
Today Year 1 Year 2 value Continuing value
Discounted economic pro&t CV
Value of operations
Percent
$ million of total
Chapter 10
Question 5 & 6
Question 5
Perpetuity formulas cannot be used when growth exceeds the cost of capital. When this occurs, cash 5ows grow
Question 6
As Exhibit 10.6 demonstrates, return on total capital does not necessarily equal return on new capital. Return
$ million
Continuing
Today Year 1 Year 2 Year 3 Year 4 Year 5 value
Revenues 250.0 265.0 280.9 297.8 315.6 334.6 354.6
Economic pro&t
NOPLAT – 19.9 21.1 22.3 23.7 25.1 26.6
EXHIBIT 10.13 ApparelCo: Free Cash Flow and Economic Pro&t Forecasts
Chapter 10
Question 1
Continuing
Today Year 1 Year 2 Year 3 Year 4 Year 5 value Key value drivers
Revenues 250.0 265.0 280.9 297.8 315.6 334.6 354.6 Investment rate 40.0% 40.0%
Check