Calveras Case
Calaveras Vineyards Case
The appropriate TBV equations to calculate the firm’s WACC and FCF are:
* R(after tax, wacc) = (E0/V0)rE + (D0/V0)rD (1-T)
* FCF = TCF – corporate tax savings from deductable interest expense or * FCF = -NCPFA + Debt interest payment – corporate tax savings from deductible interest expense
Below are the calculations for Calaveras Vineyards:
* V1/1/1994 = (2,500)/1.126 + 357,000/1.126^2 + 463,000/1.126^3 + 590,000/1.126^4 + 780,000/1.126^5 + (1/1.126^5)(905,000/.1260.04) V1/1/1994 = $7,219,840 = Value of the Calaveras
* E1/1/1994= V1/1/1994 – D1/1/1994 = 7,219,840 – 3,122,000 E1/1/1994 = $4,097,840 = Equity of the Calaveras
Assuming the additional information on employee stock options, those calculations would be altered to:
* V1/1/1994 = 7,219,840 – [233,000 + 54,000/1.14 + 67,000/1.16^2 + (1/1.16)(80,000/.16)] V1/1/1994 = $6,458,650 = Value of Calaveras with stock options
* E1/1/1994= 6,458,650 – 3,122,000 = E1/1/1994 = $3,336,650 = Equity of the Calaveras with stock options
Equity Valuations
1. Price Earnings ratio: This ratio values the company by dividing the Market Value per share by Earnings per Share. This measures the company’s past performance as well as expectations for company’s growth. 2. Book Value: This values a company by subtracting the cost of total assets minus intangible asset and liabilities. It is the total value of a company in the situation that the company was liquidated.
3. Liquidation Value: This is the total worth of the company’s physical assets when it is liquidated. This includes land, equipment, inventory, etc.
Is Calaveras a good credit risk?
Yes, due to several factors. The company has been steadily growing and it is reflected in its Net Sales from 1990 to 1992. Net Sales in 1993 dip due to the reorganization of the vineyard operations to become a part of the premium category with a few premium varieties of grapes.
The appropriate TBV equations to calculate the firm’s WACC and FCF are:
* R(after tax, wacc) = (E0/V0)rE + (D0/V0)rD (1-T)
* FCF = TCF – corporate tax savings from deductable interest expense or * FCF = -NCPFA + Debt interest payment – corporate tax savings from deductible interest expense
Below are the calculations for Calaveras Vineyards:
* V1/1/1994 = (2,500)/1.126 + 357,000/1.126^2 + 463,000/1.126^3 + 590,000/1.126^4 + 780,000/1.126^5 + (1/1.126^5)(905,000/.1260.04) V1/1/1994 = $7,219,840 = Value of the Calaveras
* E1/1/1994= V1/1/1994 – D1/1/1994 = 7,219,840 – 3,122,000 E1/1/1994 = $4,097,840 = Equity of the Calaveras
Assuming the additional information on employee stock options, those calculations would be altered to:
* V1/1/1994 = 7,219,840 – [233,000 + 54,000/1.14 + 67,000/1.16^2 + (1/1.16)(80,000/.16)] V1/1/1994 = $6,458,650 = Value of Calaveras with stock options
* E1/1/1994= 6,458,650 – 3,122,000 = E1/1/1994 = $3,336,650 = Equity of the Calaveras with stock options
Equity Valuations
1. Price Earnings ratio: This ratio values the company by dividing the Market Value per share by Earnings per Share. This measures the company’s past performance as well as expectations for company’s growth. 2. Book Value: This values a company by subtracting the cost of total assets minus intangible asset and liabilities. It is the total value of a company in the situation that the company was liquidated.
3. Liquidation Value: This is the total worth of the company’s physical assets when it is liquidated. This includes land, equipment, inventory, etc.
Is Calaveras a good credit risk?
Yes, due to several factors. The company has been steadily growing and it is reflected in its Net Sales from 1990 to 1992. Net Sales in 1993 dip due to the reorganization of the vineyard operations to become a part of the premium category with a few premium varieties of grapes.