DCF Question: How valuation changes if I buy a factory with $100 cash?
Hello everybody,
I am working on a valuation question I found in one of the popular interview guides. The question asks me to evaluate the impact on the DCF valuation from the purchase of a factory with $100 cash on year 4 My answer was not similar to the one I found on the guide so I would appreciate if anybody could point out the flaw in my thinking:
- At year 4 I have Unlevered free cashflow UNCHANGED because Capex goes up by 100 but Change in NWC goes down by 100. so
- 100 - (-100) = 0.
- Assuming marginal tax rate 't', salv value = 0, useful life = 5 yr, then I have 5 tax shields on yrs 5 ... 9 each of which is 20*t. By discounting those 5 tax shields from depreciation using WACC I get the increase in DCF valuation.
Um shouldn't NWC stay the same? (assets should stay the same).
Isn't cash, marketable securities & short term investments line item on the Balance Sheet part of NWC?
(don'f forget the definition of NWC = Current Asstes - non interest bearing Current Liabilities)
Dolorem laboriosam minus neque dicta veniam quaerat aut esse. Quis dolorem autem in et deleniti.
Ut inventore hic sit dolor. Accusantium eaque quaerat ipsa illum modi. Omnis autem autem architecto voluptatem vel beatae. Repellendus distinctio adipisci saepe magnam rerum. Molestias qui fugit dolores dolor.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...