Reference no: EM133307214

Today is 31 December 2022. Industrial manufacturer McMiller Brothers is thinking about launching a new division "McM Plus". As a consultant, you are expected to help them decide whether or not the company should go ahead with this project. In this context, you are asked to project a 10 year FCF and a RV in the final year (DCF Valuation). Additionally, you will have to get the value of this new business through market multiples.

a. In 2023, Revenues are estimated to be $25mn. From thereafter (until 2033), revenues are expected to grow at 5% annually.

b. COGS is estimated to be 50% of sales.

c. Overall expenses (all other expenses except for depreciation) are estimated at 10% of sales.

d. Depreciation cost is $3mn annually.

e. Applicable tax rate is 30%.

f. Working Capital requirements are estimated at 11% of sales volume.

g. WACC=12%

h. Perpetual growth rate = 4%

i. Debt = $22mn. Cash = $1.

j. Sector average EV/Sales 2022 = 5.5x

k. Sector average EV/EBITDA 2022 = 11x

l. Sector average P/E 2022 = 18x

The final valuation of a company may be different depending on the method chosen. What would you tell McMiller Brothers the value of McM plus would be?