Scribd
Upload
2K views

Accounting 9 DCF Model

The management accountant was tasked to project the valuation of Cheesecake and Pearl Company. Historical financial data from 2017 to 2020 showed increasing revenues and costs except in 2020 due to the pandemic. Management directed excluding 2020 and assuming the same pre-pandemic growth rate from 2021 onwards. Variable costs and expenses will mirror historical rates while fixed costs include depreciation. Capital will be invested yearly and cash flows will grow 5% after the initial 5-year forecast. The required calculations include compound annual growth rates, projected income and cash flows from 2021 to 2025, and enterprise and equity values.

Uploaded by

Rica Catangui
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
2K views

Accounting 9 DCF Model

The management accountant was tasked to project the valuation of Cheesecake and Pearl Company. Historical financial data from 2017 to 2020 showed increasing revenues and costs except in 2020 due to the pandemic. Management directed excluding 2020 and assuming the same pre-pandemic growth rate from 2021 onwards. Variable costs and expenses will mirror historical rates while fixed costs include depreciation. Capital will be invested yearly and cash flows will grow 5% after the initial 5-year forecast. The required calculations include compound annual growth rates, projected income and cash flows from 2021 to 2025, and enterprise and equity values.

Uploaded by

Rica Catangui
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 1

You are the management accountant of Cheesecake and Pearl Company.

You were tasked to make an


internal projection for the valuation exercise of the company.

2017 2018 2019 2020


Volume 1,000,000 1,100,000 1,210,000 605,000
Revenues 5,000,000 5,500,000 6,050,000 3,025,000
Cost of goods sold:
 Variable 1,500,000 1,650,00 1,815,000 907,500
0
 Fixed 1,500,000 1,500,00 1,500,000 1,500,000
0
Gross profit 2,000,000 2,350,000 2,735,000 617,500
Operating expenses:
 Variable 500,000 550,000 605,000 302,500
 Fixed 400,000 400,000 400,000 400,000
Operating income 1,100,000 1,400,000 1,730,000 (85,000)
Management directed that the future trajectory of the business will be based on its historical revenue
performance with the exclusion of 2020 as it is an unusual year because of pandemic. Management
assumes that it can achieve the same level of sales growth pre-pandemic from 2021 onwards with 2020
as its base year.

Variable and fixed COGS and operating expenses will exhibit the same behavior as historical results. 60%
of fixed COGS are related to depreciation while 30% of fixed operating expenses are related to
deprecation. Capital investment is estimated to be infused yearly at P500,000. Net cash flow is
estimated to grow by 5% after the initial 5-year forecast period. Cost of capital for Cheesecake and Pearl
Company is at 8%. Corporate income tax rate is imposed at 25%. Outstanding loans at end of 2020 is at
P5,000,000.

Required:

1. What is the compounded annual growth rate for revenues for 2017 to 2020?
2. What is the compounded annual growth rate for revenues for 2017 to 2019?
3. What is the growth rate that will be used in the forecaster preparation?
4. What is the projected net income for 2021 to 2025?
5. What is the net cash flows from 2021 to 2025?
6. what is the enterprise value of Cheesecake and Pearl Company?
7. What is the equity value of Cheesecake and Pearl Company?

You might also like