Mercury Estimate
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Estimate the Value of Mercury using a discounted cash flow approach
2007  2008  2009  2010  2011  
Revenue  $479,329  $489,028  $532,137  $570,319  $597,717  
Less:  Operating Expenses  $423,837  $427,333  $465,110  $498,535  $522,522 
Less:  Corporate Overhead  $8,487  $8,659  $9,422  $10,098  $10,583 
EBIT  $47,005  $53,036  $57,605  $61,686  $64,612  
Less:  Taxes (EBIT*40% tax rate)  $18,802  $21,214  $23,042  $24,674  $25,845 
$28,203  $31,822  $34,563  $37,012  $38,767  
Add:  Depreciation  $9,587  $9,781  $10,643  $11,406  $11,954 
Less:  Capital Expenditures  $11,983  $12,226  $13,303  $14,258  $14,943 
Less:  Increase in Net Working Capital  $4,569  $2,648  $9,805  $8,687  $6,234 
Free Cash Flows  $21,238  $26,728  $22,097  $25,473  $29,544 
market rate of return(Km) = 9.93%
Growth Rate:  3% 
WACC:  11.08% 
CAPM  =KRF + β(KM – KRF)  
=  4.93+1.6(9.934.69)  
=  13.3%  
WACC  WDCOSTD(1T) + WSCOSTS  
=  .20*.06(1.40)+.80(.1295)  
=  .0072+ .1036  
=  11.08%  
Vn =  $29,544 (1+.03)  =$376,613  
(.1108.03)  


2007  2008  2009  2010  2011  
V0 =  $21,238 +  $26,728 +  $22,097 +  $25,473 +  $29,544 +  $376,613 
(1+.1108)  (1+.1108)^2  (1+.1108)^3  (1+.1108)^4  (1+.1108)^5  (1+.1108)^5  
=  $19,120 +  $21,662 +  $16,122 +  $16,732 +  $17,470 +  $222,698 
=  $313,804  
Enterprise Value=  V0 + Cash0 – Debt0  
=  $313,804$56,525+$106476  
=  $359,653 
Mercury enterprise value is $359,653. The cash flow for the years 2007 2011 should be calculated. It is calculated by adding the free cash to depreciation and then subtracting the capital expenditures and the increase in the net working capital. The values of capital expenditures and depreciation are provided; hence we can find the net increases in the working capital. Differences between the current liabilities and assets are compared to the prior year.
To calculate the CAPM the formulae K_{RF} + β (K_{M } – K_{RF} ) is applied. It is vital to determine the risk free rate and the beta. The risk rate is 4.69% while the risk free rate is 4.93% and finally the beta was evaluated by the use of the average 1.6. The calculation of these values equate to 12.95 as the capital equity cost.
weighted average cost of capital (WACC)
It was derived by the following formula W_{D} ( Cost (1T) + W_{S} Costs. the weight of the debt is 20% and the cost of the debt is 6%. the values of tax rate is given as 40% . the cost equity is calculated by using the CAPM and all the input values in WACC are used,
The terminal value is used in calculating the present value for the future cash flows. Through substitution in the present value formula the enterprise value is obtained. Finally there is substitution to the formula so as to determine the enterprise value. To obtain enterprise value: V_{0 }debt added to cash are applied. The value of V_{0 }is $313804 and cash is $10,676, debt of $56,525 for the year 2006. The result of the enterprise value $359,653
Use of excel
year  present value 
2007  19120 
2008  21662 
2009  16122 
2010  171470 
2011  222698 
The appreciating impact in the graph shows that there is a good return on investment to the company. Tis is due to the fact that after the year 2009 the gradient is steep implying that the company is enjoying good profits.