Corporate Finance Project: Clarkson Lumber Company Analysis

This corporate finance project analyzes the Clarkson Lumber Company, focusing on its financial performance and valuation. The assignment includes calculating equity value, considering the impact of the cost of capital and growth rate, and determining enterprise value. It involves calculating and interpreting financial multiples like EV/Sales and EV/EBIT. The project also explores the rationale for firm valuation over equity valuation in this context. The analysis highlights the factors influencing equity valuation and the overall financial health of the company. The solution provided is based on the case study of Clarkson Lumber Company and includes relevant calculations and interpretations of financial data.

Running head: CORPORATE FINANCE
Corporate Finance
Name of the Student:
Name of the University:
Authors Note:

CORPORATE FINANCE 2
Table of Contents
Part 2:.........................................................................................................................................3
1. Indicating why the cash flow for the full year 1996 in the Base scenario so negative:.........3
2. Finding the equity value:........................................................................................................3
3. Indicating the measure influencing the Equity valuation:......................................................4
4. Calculating two multiples for the organisation and evaluating the statistical data presented
in exhibit 3:................................................................................................................................4
5. Detecting what value can be calculated and why instead of Equity value:...........................5
Reference and Bibliography:......................................................................................................6

CORPORATE FINANCE 3
Part 2:
1. Indicating why the cash flow for the full year 1996 in the Base scenario so negative:
The main reason behind the overall low income in 1996 is due to the high level of
interest payment that was conducted by the company, while the EBIT was low. This
relevantly reduced the overall net profits of the company during the fiscal year. Ehrhardt and
Brigham (2016) mentioned that high level of interest bearing loans relevantly reduce the
overall profitability of the company during the fiscal year, as they erode the profits and
hamper company’s growth. Moreover, the organisation the increment in profits was
relevantly seen from second year, where the profits doubled, due to the high level of
revenues.
2. Finding the equity value:
Particulars Value
WACC 10.00%
Growth rate 5%
NPV $ 366
Terminal value $ 2,674
PV of the Terminal Value $ 1,660
Enterprise Value $2,026
Debt 619
Cash 56
Equity Value $1,463

CORPORATE FINANCE 4
The above table relevantly indicates the overall equity value of the organisation when
the improvements in the operating margin were not conducted by adding the 10 days paying
scheme. In addition, without the count of the relevant method the overall equity values are
valued at the levels of $1,463,000. This valuation is relevantly low in comparison to the best
case scenario.
3. Indicating the measure influencing the Equity valuation:
There are two measures that are influencing the equity value are cost of capital and
the growth rate, both of which is assumed and anticipated by the organisation in the long run.
This valuation process relevantly alters the overall valuation of equity as shown in alternative
1, where the growth rate was discarded and equity value declined. In the similar context, the
change in cost of capita will also negatively impact the overall equity valuation of the
organisation.
4. Calculating two multiples for the organisation and evaluating the statistical data
presented in exhibit 3:
Particulars Value
EV/Sales 0.48
EV/EBIT 10.54
The two multiples for the organisation have been calculated as EV/Sales and
EV/EBIT, where the values are mainly depicted in the above table. The values of EV/Sales
relevantly indicate that the overall enterprise value is mainly at 0.48 times of the overall sales
incurred by the company. Furthermore, the overall enterprise value is 10.54 times the EBIT
of the company, which relevantly contributes rising performance of the company. In addition,

CORPORATE FINANCE 5
the statistical data indicates low profit outlet and high profit outlet situation, where the
current projection of the company is mainly towards the high profit outlet.
5. Detecting what value can be calculated and why instead of Equity value:
Instead of the Equity value the overall calculation can be conducted for firm
valuation, which might help in determining the overall value of the current firm. The
valuation process might eventually help in the organisation determining its current valuation
projections, which allow the management to take adequate investment decisions. The firm
valuation relevantly evaluates the overall business, which is not conducted by the equity
values, as it only estimates the equity claims of the business (Damodaran 2016).

CORPORATE FINANCE 6
Reference and Bibliography:
Damodaran, A., 2016. Damodaran on valuation: security analysis for investment and
corporate finance (Vol. 324). John Wiley & Sons.
Ehrhardt, M.C. and Brigham, E.F., 2016. Corporate finance: A focused approach. Cengage
learning.
Fracassi, C., 2016. Corporate finance policies and social networks. Management
Science, 63(8), pp.2420-2438.
Vernimmen, P., Quiry, P., Dallocchio, M., Le Fur, Y. and Salvi, A., 2014. Corporate finance:
theory and practice. John Wiley & Sons.