MBA FP 6014 Financial Accounting Valuation Project

Description

Required: Calculate the value of the Gencor using the following two methods (a and b):

a. Comparable multiples*. You must use P/S, P/E and Discounted cash flow approaches. For the discounted cash flow valuation model, you must forecast an additional three (3) years as a total of five (5) years of yearly cash flows are required (terminal value calculation thereafter). The most important aspect of (a) is the selection of inputs and the associated documentation, discussion and motivation why certain companies and numbers were selected.

b. Acquisition premium. As in (a), document your selections.

c. Compare the firm’s values and comment in detail on the firms’ performance and valuation as related to your selection of comparables. Also use the PEG Ratio, in addition to the previously calculated valuation metrics.** The PEG ratio allows you to determine if your valuation makes the company over- or under-valued.

d. Note that you may do the valuation of the company as a whole or two valuations of the two separate businesses. It is best to do the valuation of the two divisions separately and then add them together and value the company as a whole when you do the P/E and P/S valuation. For the discounted cash flow method, do it as one company only, i.e., do not split Gencor into its two separate divisions.

e. The provided comparable firms do not include companies in the combustion sector. You will need to find two to three firms on your own. Please note that finding comparable firms for the combustion systems part may require some research on your part.

f. Gencor and Cosan are real companies, and you may wish to access information from various websites. However, you must use the

income statement information and industry information (blue side bar on the previous page) provided in this case when you do the valuation. You may add additional comparable firms.

g. Be sure to state any assumptions you make. Also make sure you discuss and support why you picked certain numbers and companies. As stated earlier, this is an important aspect of this problem. When needed, use a discount rate of 12 percent. If needed, the tax rate = 25%.

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