Universitat De Barcelona Corporate Finance Exam June 2017 PDF

UNIVERSITAT DE BARCELONA Corporate Finance Facultat d’Economia i Empresa Departament d´Empresa 24 of June 2017 1 Surname:...................................................................................................... Na...

UNIVERSITAT DE BARCELONA Corporate Finance Facultat d’Economia i Empresa Departament d´Empresa 24 of June 2017 1 Surname:...................................................................................................... Name: Nombre:.................................................. DNI/st.number:......................................... Grupo matrícula:...EUS........ Profesor:....Yuliya Kasperskaya....................................................... 1. Under which conditions real IRR* can be (a) less (b) more or (c) equal to nominal (apparent) IRR? Justify your answer on the basis of the functional relationship (formula) which relates real IRR to the nominal one. *adjusted for inflation 2 2. Explain the meaning of the leveraged buy-out in the context of mergers and acquisitions. Indicate the characteristics of the firms which represent suitable targets for the leveraged buy-out. 3 (space ex.2) 4 3. The firm JOANPA released the following income statement and the balance sheet at the end of the year 2015 (in m.u.): Assets Equity+Liabilities Incomes stament Fixed assets 250 Capital 150 Gross margin 100 Current assets 200 Retained earnings 100 Administrative expenses (28) Debt long-term 80 Financial expenses (25) Debt short-term 120 Corporate tax (15) TOTAL 450 TOTAL 450 Net Income 32 At the end of 2016 the firm maintained the same balance-sheet’s amounts. However, the income statement at the end of 2016 suffered the following modifications due to economic crisis: the gross margin obtained was 75 m.u and the corporate tax equaled to 10 m.u. The administrative and financial expenses were the same as in the year 2015. Required: 1) Determine the ratios of economic profitability, financial profitability and the effect of financial leverage for financial profitability in the year 2015. 2) Analyze and compare the effect of financial leverage in the years 2015 and 2016. Make a comment on your results. 5 (Space for the exercise 3) 6 4. Firm ABC released the following financial statements at 31.12.2015 (in thousands of euros €) Balance Sheet at 31/12/2015 Income statement at 31/12/2015 Fixed assets 3000 Sales revenues 4000 Current assets 2000 Operational costs 3500 Total assets 5000 EBITDA 500 Depreciatons&amortizations 100 EBIT 400 Net Equity 2000 Financial expenses 100 Debt 2000 EBT 300 Payables (suppliers) 1000 Corporate tax 75 Total equity + liabilities 5000 Net Income (earnings) 225 Required: 1. Determine the market value of the firm ABC using the following average multiples of the ABC industrial sector and the data of 2015  PER (price to earning ratio)= 6.5  EBITDAR (price to EBITDA) = 3.5  PBVR (Price to Book Value Ratio) = 0.8 2. Determine the value of the firm ABC using the equity approach of the discounted cash flow method.  Forecasted incomes statements for the years 2016 till 2020: 2016 2017 2018 2019 2020 4700 520 5500. 6000. Sales 4500.0.0 0.0 0 0 (4100. (4400. (4800. (5000. (5500.0 Operational costs 0) 0) 0) 0) ) EBITDA 400.0 300.0 400.0 500.0 500.0 (120. (150.0 Depreciations 0) (130.0) (140.0) ) (150.0) EBIT 280.0 170.0 260.0 350.0 350.0 (120.0 Financial Expenses (110.0) (120.0) (110.0) ) (110.0) 50. EBT 170.0 0 150.0 230.0 240.0 Corporate tax (25%) ( 42.5) (12.5) (37.5) (57.5) ( 60.0) 180 Net Income 127.5 37.5 112.5 172.5.0 2016 2017 2018 2019 2020 Investment in fixed assets 160.0 180.0 170.0 240.0 215.0 Net debt (debt increase- 80.0 68.0 75.0 debt repayment) 65.0 75.0  The investment in WC of each year is estimated to be equal to 20% of the increase of sales revenues of this year with respect to the previous year.  The perpetual annual average growth of the free cash flows (g) starting from the year 2020 is 3%. 7  The expected return on equity is 10% and WACC equals to 7%. 8 (Space for the ex.4) 9 (Space for the ex.4) 10 (Space for the ex.4) 11 Scrap paper (will not be corrected) 12