Nestlé Case Study

Case-Study-Nestle-Solutions

1) After-Tax WACC= E/V*requity+D/V*rdebt*(1-Tc) rdebt= Taxes(2007): Profit before taxes (2007): T C: 1-Tc: rf: market risk premium: βequity (levered): Derive the cost of equity from CAPM: SML: ri = 0,01239 + βi *0,111 requity= D/V: E/V: WACC-after-tax: 7,433% 0,239 0,761 0,06225319 3,186% 3416 13518 0,2527001 0,7472999 1,239% 11,10% 0,558

(source: text, cost of debt before tax

(source: income statement / append

(source: income statement / append

(calculation: Taxes / Profit before ta

(source: text-data, p. 3, current risk(source: text-data,p. 3) (source: text-data,p. 3)

(calculation: 0,01239 + 0,558 * 0,111

(source: text-data, p. 3, market valu (calculation: 1-0,239)

(calculation: 0,761 * 0,07433 + 0,239

2.) Sales EBIT in % of sales NWC without cash

2007 107552 15024 8053

2008 117661,888 16472,6643 8809,982

2009 128722,105 18021,0948 9638,12031

2010 140821,983 19715,0777 10544,1036

2011 154059,25 21568,295 11535,2494

The sales of 2007 are derived from the segmental information in the appendix (p.8) or the income statement (p.5). For all years after 2008 the sales are forecasted to grow at the historical sales growth rate of the food processing industry. The growth rate is 9,4% and can be found in the appendix (p.9). The EBIT of 2007 is stated in the income statement (p.5). In the absence of the new project the relation of EBIT to Sales in each future year would be the same as in 2007. EBIT(2007) / Sales(2007) = 107552 / 15024 = 0,1397 = 14% To get the EBIT of the other years, one have to multiply the sales with 0,14.

The information necessary to calculate the NWC of 2007 can be extraced of the balance sheet in the appendix. Trade and other receivables +Inventories +Prepayments -Trade and other payables -Accruals and deffered inc. =NWC without cash 15421 9272 805 14179 3266 8053

We assume that the relation between Sales in a year and Net Working Capital (without Cash) required during...