Teuer Furniture Case Study

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We calculated the accounts receivable balances for stores in 2013 to 2018 by taking the prior year’s sales multiplied by 32.4%, which was the average accounts receivables to sales ratio from 2004 to 2012. Inventory and accounts payables balances were calculated in a similar fashion, by multiplying the following year’s CGS by 47.6%, average inventory to CGS balance, and 16.3%, average accounts payable to CGS balance. Accrued expenditures were forecasted based on the current year’s SGA and Advertising multiplied by 4.8%, the average SGA and Advertising expense to Accrued Expense ratio.

To calculate the total company balance sheet, we summed the accounts receivable, inventory, accounts payable and accrued expenses for all stores. Calculating PPE required a slightly different approach. We started with the 2012 PPE balance and added current year (2013) capital expenditures and subtracted the current year (2013) depreciation to arrive at the current year PPE balance. PPE balances for 2014 to 2018 were calculated the same way, by taking the prior year PPE balance adding current year CapEx and subtracting current year depreciation. Lastly, we calculated Equity by taking the difference between total Assets and total Liabilities.

Cash Flow Assets and Discounted Cash Flow Valuation

We calculated total company Cash Flow Assets starting from Net Income and adjusted Capital Expenditure, Depreciation and Net Working Capital which resulted in the yearly Cash Flow to Asset from 2013 to 2018. We calculated total present value of those cash flows at the end of 2012 to be $85.20M.

In order to calculate the terminal value for cash flows from 2019 onward, we took the 2018 Cash Flow to Assets $27.67M and assumed a perpetual cash flow growing at a rate of 3.5% per year and discounted that by 12%. This provided the terminal value of the company at the end of 2018.

Terminal value at the end of 2018 = ($27.67M * 1.035)/(12.1%-3.5%) = $333.05M

The present value of the terminal value at the end of 2012 was calculated to be $333.05/(1+12.1%)^6 = $167.83M.

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Thus, the total asset value of the firm is estimated to be $253.03M, divided by 9,945 shares is $25.44 per share.

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