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after finding the FCF, we have discounted it at cost of capital, after that why dont we deduct the value of debt of the manufacturing business unit?
I do not know which part of the answer you are referring to. Certainly in appendix three, the free cash flows have been discounted at the cost of capital in order to arrive at the total value of the business. The debt has then been subtracted so as to get the value of the equity.
appendix one, is it because its being sold so the management takes over the debt and equity thats why we dont deduct debt of the manufacturing business unit?
Also a few more q’s,1) why havent they deducted additional investment of 1200 to find the FCF in appendix 3? I understand your answer in other q was that we calculate the PV of c/f’s thats why, but i didnt really understand what this meant, we always deduct additional investment for calculating FCF right? so why is this different?
2) And for the 3102 we recieve from supplier why dont we calculate its present value? im sort of confused on when we need to calculate the PV of a reciept and when we dont
3) the sofp we prepare isnt that a forecast sofp? since its a forecasted one shouldnt depreciation be deducted from nca? and interest paid deducted from cash?
also just one more question – why havent we added the value of MBO to the value of chrysos to find its value and then do 40%? For example when we did cigno se/dec 15 we did value of combined company as value of sell off+ value of anatra’s R&D, so why arent we adding the value of MBO to find the value of company?
As far as appendix 1 is concerned, what you have written is correct.
(1) The value of the business is the PV of the future cash flows. Spending $1,200 on equipment simply means that have less cash and more equipment – it only affects the value in that because of this the future cash flows will increase.
The same logic applies to (2)(3) The new SOFP is showing the position on the assumption the restructuring were to take place immediately. (If we were forecasting the position at the end of a year then there would be a lot more work involved than just charing depreciation and interest)
(4) The value of a business is the PV of the expected future cash flows. The MBO will mean that on the SOFP the cash increases and the assets taken over are reduced. Any profit or loss on sales is included in the balancing figure for reserves.
just one last thing so that means when we use any method other than FCF for valuing the unbundled part of the company it will be added to value of combined company? and if it was forecast for a year the 1200 would be deducted rigjt?
And, when you said MBO, the value is PV of future cash flows, so isn’t the cash we receive a part of that so why won’t we include it in calculating our valueand the value of the business is the PV of future c/f so the option of receiving cash of 3102 is immediate not a pv of future c/f so we don’t discount it but if it was one year from now we would, am i right in thinking that?
If part of the company is unbundled, then the nothing is subtracted from anything. The value of company remaining is the PV of the future cash flows. The amount received from the unbundling simply increases the amount of cash in the company while the assets that were sold reduce the assets remaining.
If the cash was received in a years time then it would affect the cash balance in a years time and in the meantime it would be a receivable in the SOFP.
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