Cimspa Case Study

2612 words - 11 pages

CIMSPA Case-Study
Corporate Finance - SS 2010/11
Group 41
18-04-2010

Filipa Reis nº 9485 Manuel Abegão nº 8952 David Bianchi nº 513 Ângela Fénix nº 9421 José Benjamim nº 10369

Índice
Introdução ................................................................................................................................... 3 Question 1 ................................................................................................................................... 3 Operational Cash-Flows ………………………………………………………………………………………………6 Free Cash-Flows ………………………………………………………………………………………………………… 7 Net Present Value ……………………………………………………………………………………………………… 7 Internal Rate of Return ...view middle of the document...

We assumed that the company is financed entirely with equity, and also that the discount rate is 18% (10% of nominal rate plus a country risk premium of 8% - Angola). In order to study the first scenario, we had to do some researches. As cash flows are computed in Euros, we had to find the exchange rates from AKZ and USD to EUR in Bloomberg considering September 30th 2010:

Bloomberg 1eur-akz 1eur-dol
1.1 Exchange rates

125,1643 1,36

We assumed the production and the number of employees to grow with the GDP growth rate, and the price per ton to grow with inflation. We determinate the inflation rate and the GDP growth rate using the information on the IMF-International Monetary Fund:

2011 Expected GDP growth rate Inflation rate
1.2

2012 2 9,70% 11,0%

2013 3 6,50% 8,9%

2014 4 6,40% 6,5%

2015 5 6,40% 6,00%

1 6,40% 13,3%

3

The project is evaluated in 5 years (from 2010 to 2015, being 2010 the “Year 0” NWC Change in NWC Investment Opportunity Cost Land ICF FCF
1.3 FCF in 2010

24.597.916,97 € 24.597.916,97 - 225.000.000 - 30.000.000 - 279.597.917 € - 279.597.917 €

By the end of 2010, the present value of the respective Free Cash Flow (FCF), which adds up the Operational (OCF) and the Investment Cash Flows (ICF), will be of -279.597.917€. Since no operations have yet taken place (sales, operating costs and depreciation are zero), the FCF is only the ICF - the sum of the investments, the opportunity cost of the land and the change of Net Working Capital (NWC). Manufacturing Plant Investment 150.000.000 € Useful life (years) 20 Depreciation (per year) 7.500.000 € Complementary Machinery Investment 75.000.000 € Useful life (years) 10 Depreciation (per year) 7.500.000 €
1.4

These include the investments in the manufacturing plant and in the complementary machinery, 150.000.000€ and 75.000.000€ respectively (see 1.4). The change in NWC and, the fact that CIMSPA cannot use the land for other purposes, increases the investment costs by 30.000.000€ (the opportunity cost

The NWC is calculated based on the sales of the following year. In 2011, it’s estimated that CIMSPA will sell 740.000 tons of cement at 166,20€/ton (see 1.5), which means CIMSPA requires 24.597.916,97€ as NWC. 2011 166,20 € 740.000,00 122.989.584,86 €

Sale price Production Sales
1.5

That leads to a Change in NWC of exactly the same amount (in the previous year, 2009, there was no need for retaining capital, since no project was in progress). It’s useful to notice that the investment, the opportunity costs and the Change in NWC will have a negative weight in the FCF, because it leaves us less capital available to use. From 2011 until 2015, the OCF is already going to be positive. That is because it includes the EBIT net from taxes (Net income), from which is subtracted the Total Effect of Cannibalism. The EBIT is the difference between Revenues and Costs. From the given data we were able to determine the:  Sales – as explained above 4

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