You are an Investment Banker with the firm of Emerson, Lake and Palmer, LLC and you’re working on a leveraged acquisition being considered by your client, Allison Chains, Inc. You’ve received financial Information and projections from the target company and you begin the process with the preparation of your DCF valuation model. You know that your Managing Director at Emerson, Lake and Palmer, LLC will want to present two general forms of analysis to the Allison Chains, Inc. board of directors. • The first will be a valuation of the entire business enterprise based on a projection of Free Cash Flow. This will be used to discuss the pricing of the deal to acquire the entire business enterprise.
The second will be an IRR analysis of the specific investment returns in the form of Net Cash Flow that Allison Chains, Inc. will earn on the equity portion of their purchase of the target company. Earnings before Interest, Taxes, Depr. and Amort. Amortization Expense Depreciation Expense Earnings Before Interest and Taxes Interest Expense Income Before taxes Provision for Taxes Net Income Year 1 $ 15,000 SO $ 3,000 $ 12,000 $ 2,000 $ 10,000 $ 2,700 $ 7,300 Other data Dividends Paid Required Change in New Working Capital Capital Expenditures Net Debt Principal Payments $ ($ ($ $ 0 1,000) 3,200) 1.000) Based on the information set out above, make a separate calculation of the Year 1 values of FCF and NCF that you’ll use in your valuation modeling Focu RE Year 1 Earnings before Interest, Taxes, Depi 15000 Amortization Expense Depreciation Expense 3000 Earnings Before Interest and Taxes 12000 Interest Expense 2000 Income Before taxes 10000 Provision for Taxes 2700 Net income 7300 1 Other data 2 Dividends Paid 3 Required Change in New Working 4 Capital Expenditures _5 Net Debt Principal Payments -1000 -3200 -1000 Problem 1 Problem 2 Problem 3 Select destination and press ENTER or choose Paste Problem 4 +
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