Corporate Finance: Valuation & Free Cash Flow

This assignment covers two key concepts in corporate finance: discounted cash flow (DCF) valuation using General Mills as a case study, and free cash flow (FCF) analysis for Kimberly-Clark Corporation. The first part explores how to calculate the enterprise value of a company using different scenarios for revenue growth. The second part delves into calculating FCF using various methods and its implications for distributing funds to shareholders.

Finance

Chapter 4: A Discounted Cash Flow Valuation: General Mills, Inc. (10 marks)
First scenario
Year 2010 2011 2012 2013 2014
Net cash flow from
operations 2107 2107 2107 2107 2107
Discounting factor @ 10% 0.911 0.830 0.756 0.688 0.627
PV of cash flows 1,919 1,748 1,592 1,450 1,321
Terminal Value
Sum of PV of FCF for explicit
forecast 8,030
WACC 9.79%
Long term growth in Revenues 0%
Present Value of terminal value 8,458
Terminal Value as % of Total Value 51%
Equity Value
Enterprise
Value 16,488
Second scenario: when cash flow from operation will increase by 3%
Year 2010 2011 2012 2013 2014
Net cash flow from
operations 2170 2235 2302 2371 2443
Discounting factor @ 10% 0.911 0.830 0.756 0.688 0.627
PV of cash flows 1,977 1,854 1,740 1,632 1,531
Terminal Value
Sum of PV of FCF for explicit
forecast 8,734
WACC 9.79%
Long term growth in Revenues 0%
Present Value of terminal value 9,805
Terminal Value as % of Total Value 53%
Equity Value

Enterprise
Value 18,539
Interpretation: The above depicted table shows that enterprise value will be higher
when sales revenue increases by 3% every year. Thus, for enhancing value firm needs to
make focus on sales enhancement.
Chapter 11: Free Cash Flow for Kimberly-Clark Corporation (10 marks)
1. Calculate free cash flow using Method 2.
Method 2
FCFF = Cash flow from Operations – Net Investment in Long Term Assets + Interest
Expense (1-Tax Rate)
FCFF = 2429 – 842 + 142.4 (1- .37)
= 1676.71 million
Considering above calculation, it can be depicted that $1676.61 million are available
to company for distributing among shareholders in the form dividend and other activities.
2.
When net interest payment is considered as non-operating expense
Free cash flow: Cash flow from operating activities – capital expenses
= $1539.99 - ($898 - $56)
= $697.99 million
Net cash flow from operations after tax: 2429 – (2429 * 36.6%)
= $1539.99
Or
When net interest payment is considered as operating expense
FCF: ($2429 - $142.4) - ($898 - $56)
= $1449.70 - $842
= $607.70 million
Net cash flow from operations after tax: 2286.6 – (2429 * 36.6%)
= $1449.70 million