1. What are the projected earnings and free cash flow for NanoThin over the next 2 years
Based on the fact that
a) Zero growth in free cash flows after 2007.
b) NanoThin also projected that future annual depreciation and amortization expense would be approximately equal to future annual capital expenditure.
We can calculate that the Free Cash Flow = Cash Flow from Operations – Capital Expenditures
i. $3,726 - $2,300 = $1,426
EBIDA= Net Income + Depreciation+ amortization
I used the average gross profit percent of Projected 2005, 2006, and 2007, which is 48% as the gross profit percent to project the next two years. ...view middle of the document...
Method 1 multiple of free cash flow
Method 2 multiple of earnings valuation model
Method 3P/E ratio model
For companies requiring major investments in new equipment in order to sustain growth, it is common to use a multiple of the companies ‘free cash flow, which is usually a more conservative method, yielding a lower value. The P/E ration model is commonly used when valuing publicly owned companies. The P/E ratio is the multiplier used with the company’s after-tax earnings to determined its value. NTC is currently not a publicly traded company. Thus, it is better to find the public company that is the most comparable to used the model, otherwise the result won’t be accurate to use the P/E ratio model.
These are the three techniques to value NTC. I used multiplier of 8 for both method 2 and method 3. The values used by three different methods are all above the $1100000 invested to NTC, which indicated that NTC has a pretty good value increase. The price I would recommend to NTC is to average the values I used by three methods, which should be (20,761,000+20,761,000+12,556,000)/3=$18,026000
4. Do you recommend that BRC go ahead with the NanoThin acquisition and how should they pay for it if they should? Discuss reasons for and against the...