A private equity client is considering acquiring Cobalt Robotics, a industrial robotics business in Japan. You have been asked to build the valuation case.
The company generated ¥437 B of revenue last year at an EBIT margin of 12%. Management projects revenue growth of 8% per year for five years, after which the business is expected to settle into mature, GDP-like growth.
Capital expenditure runs at 7% of revenue and depreciation & amortisation at 7%. Changes in net working capital consume roughly 4% of incremental revenue. The effective tax rate is 30%.
The company's equity beta is 1.29, the risk-free rate is 5.6%, and the equity risk premium is 5.3%. Debt carries a pre-tax cost of 7.1% and makes up 42% of the capital structure.
The seller is asking ¥2169 B for the enterprise.
Value the business and advise on the asking price. Provide:
Show your calculations. State assumptions explicitly where the case is silent.
100 points, 60% to pass.
Free cash flow for each of years 1-5: FCF = EBIT × (1 − t) + D&A − capex − ΔNWC
WACC:
Terminal value at year 5, using either perpetuity growth (g below long-run GDP) or an exit EBITDA multiple. Sanity-check one against the other.
Discount everything to today, sum, and compare with the asking price.
Sensitivity across WACC and terminal growth.