Re: DCF model - working capital item
Excellent question. Please go to our main website: http://www.wallst-training.com/ and click on FREE RESOURCES. Scroll down in the first section to: Financial Statement Assumptions Download that PDF and refer to the... Excellent question.

Please go to our main website: http://www.wallst-training.com/

and click on FREE RESOURCES.
Scroll down in the first section to: Financial Statement Assumptions
Download that PDF and refer to the second page.

Note that if you have a full IS/BS/CF model (per our Advanced Financial Modeling - Core Model class available online at www.wstselfstudy.com) then you already have the working capital figures for your DCF analysis. Otherwse the PDF page outlines several methods to estimate it without the full model. Read More

Re: Valuation - IRR
I hate to sound naive, but I guess coming from the pure equity long/short world, I am! To review, you would recommend I take the Quick & Dirty LBO class, or might this be too simple? Secondly, "The only thing that's missing is the first payment - or the purchase price so to speak. Once ... I hate to sound naive, but I guess coming from the pure equity long/short world, I am! To review, you would recommend I take the Quick & Dirty LBO class, or might this be too simple?

Secondly,

"The only thing that's missing is the first payment - or the purchase price so to speak. Once you plop that in there (assume it's end of Year 0 cash flow), you have the core inputs for your IRR calculation, with additional adjustments to get to Equity Value and taking into account capital structure."

Would the "purchase price" simply be the investment? For example, if a private equity firm invested $5m, and when the company was sold its enterprise value was $300m and they owned 10% or $30m --- would be a simple IRR, with -5m and $30m being the inputs. Read More

Re: Pref stock included in debt for target M&A?
Please view our videos on Corporate Valuation or search the topic forums here.
In short, preferred debt is considered a form of capital tha tmust be taken out before arriving at true equity value of the current shareholders.

Re: LBO - Quick & Dirty - for a early stage investment
Sounds like you are valuing a start-up. Our traditional simplistic approach to determining capital structure of start-ups is to figure out the run-rate expenses required for say, 1-2 years or whatever comfortable buffer + required capital expenditures (if any). Then map out your potential cash flo... Sounds like you are valuing a start-up.
Our traditional simplistic approach to determining capital structure of start-ups is to figure out the run-rate expenses required for say, 1-2 years or whatever comfortable buffer + required capital expenditures (if any).

Then map out your potential cash flows (which we know is pie in the sky as of now) and see what lenders will lend you for that. Usually, lenders don't lend to start-ups and is mostly VC-funded, so the issue of debt doesn't come up at this stage (unless it's a project finance which is a whole other world). Why? b/c there are no cash flows and assets to pay interest, debt and as collateral. Read More

Factoring subsidies into WACC
Hello, A company I'm valuing gets a significant portion of its financing via government cash grants. Let's assume they normally spend $150m in capex annually with a 70/30 leverage ratio. With the cash grant, they'd get a 30% rebate off of their capital cost. So now their out-of-pocket capex is $1... Hello,
A company I'm valuing gets a significant portion of its financing via government cash grants.
Let's assume they normally spend $150m in capex annually with a 70/30 leverage ratio. With the cash grant, they'd get a 30% rebate off of their capital cost. So now their out-of-pocket capex is $105m, which they'll still leverage 70%.
In this case, what is the effect on cost of capital? 1/3 of the capital is essentially free now; does that mean if the WACC before was 6%, it now becomes 4.2% (6% * 70%)?

Thank you,
Alan Read More