Prof. Dr.iur. Dr.rer.pol. Joachim Häcker
Pre-Assignment in Corporate Finance
For testing purposes
Last Name ............................................................................................
First Name ...........................................................................................
Signature..............................................................................................
Registration number ...........................................................................
Timeframe: ........................................................................90 minutes
Max. points: .............................................. 100 points + 3 extra points
Tools: ........................................................Open book with Computer
but no Internet and further electronical gadgets
General comments:
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Please write down the solution on the space indicated (marked with a
straight line). Solutions written down somewhere else can not be taken
into consideration.
Arithmetic problems: You are asked several little questions. The solution is either right or wrong. Therefore, you will be given either all
points or zero points => Take your time for the calculation.
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All the best!
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1. Fraport case
Below the consolidated profit & loss account and balance sheet of Fraport group
(following: Fraport) for 2008 and 2009 is provided. Fraport stands for “Frankfurt airport” and is listed at the MDAX. Please base your analysis on:
 Market cap of Fraport at the end of 2009 = €2.595 bn.
 1 € = $ 1.25 and the accounts are based on IFRS.
 Current interest bearing liabilities are summarized under position “financial liabilities”. For year 2009 this sums up to €555.5 m.
 Total interest bearing liabilities are the sum of the positions “financial
liabilities” under the category non-current liabilities and current liabilities. For 2009 this would be: €1.6853 bn + €0.5555bn = €2.2408 bn.
 Capital expenditure (Capex) in 2009 = € 561m.
 Provisions are the sum of the positions: “Provisions for pensions and
similar obligations”, “provisions for income taxes” and “other provisions and accruals” (all three positions are non-current) and “provisions
for income taxes” and “other provisions and accruals” (all two positions
are current).
Exhibit 1: Consolidated P&L of Fraport
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Exhibit 2: Consolidated balance sheet
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Section 1: Fraport –is it for sale? (48 points)
1. Cost of sales format versus total expenditure format (3,5 points)
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What are the main differences between these two formats? (2,5 points)
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Which format did Fraport use for their 2008 and 2009 accounts? Explain
your answer (1 point)
2. Calculate the following financial figures of Fraport in 2009 (11
points)?
EBIT (1 point):________________
EBITDA (1 point):________________
NOPLAT (2 points):________________
Tax rate (2 points):______________
EV/EBIT ratio (2.5 points):______________
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Debt /Equity ratio (based on market value) (2.5 points):______________
3. Interest expenses (2 points)?
The “interest expenses” in 2009 are about 3 times the “interest income” in 2009.
Is this normal? Please describe the scenario if it were the other way round.
4. Depreciation (1.5 points)?
In order to determine the Free Cash Flow of Fraport, the depreciation and amortization is added in the formula. Can you explain why?
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5. Cost of debt (4 points)
Fraport’s new CFO asks how much interest Fraport paid in 2009 for its
debt. How can you help him by just using the p&l and the balance sheet?
a) What was Fraport’s cost of debt in 2009? (2 points)
Fraport’s cost of debt in 2009 ________________________________
b) Describe your approach. What is the limitation of this approach and
how can you overcome this limitation by looking at figures beyond the
p&l and balance sheet? (2 points)
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6. Deriving the Free Cash flow (11 points)
Please derive the free cash flow for Fraport in 2009 based on the following assumptions (take your time for the calculation and calculate the delta net working
capital carefully!):
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Assumption 1: Derive the free cash flow based on the fact that today is
Dec 31, 2009.
Assumption 2: The NOPLAT in 2009 was € 300 m
Please derive the Free Cash Flow based on the following steps:
Step 1: Fraport’s change in Net Working Capital in 2009
(5 points):
Step 2: Fraport’s change in provisions in 2009 (2 points):
Step 3: Fraport’s Free Cash Flow in 2009 (4 points):
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7. Balance sheet issues (6 points)
a) By how many percent does the position “trade accounts payable” exceed the
position “trade accounts receivable” in 2009? (2 points)
b) What was the book value of Fraport in 2009? (1 point)
c) Compare Fraport’s book value to Fraport’s market cap. What do you conclude? (1 point)
d) Debt ratio (2 points)
Calculate the debt ratio of Fraport in 2009 based on market value data (and not
book value data) and compare it to the average debt ratio of non-listed companies in Germany. Why is Fraport’s debt ratio different?
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8. M&A process (9 points)
a) From signing to closing: What issues need to be finalized in order to move
the transaction from signing to closing? (2 points)
b) Valuation methods: What valuation methods are being used in the M&A
case and what valuation methods are being used in the IPO case? (2 points)
c) MBOs/MBIs: Please point out the opportunities and threats of MBOs and
MBIs from a company’s perspective and its shareholders perspective (2 points).
d) Hostile takeover: If you compare the friendly M&A process to a hostile
takeover – what are the core differences? Please also refer to the milestones
“due diligence” and “valuation” (3 points).
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2. The WACC aproach (29 points)
1.Deleveraging Beta (7 points). Please derive Fraport’s Beta based on the
fact that JFK New York airport is the only company used as Fraport’s
peer group. Please derive Fraport’s Beta by deleveraging JFK New York
airport’s Beta and than releveraging it again.The following facts are given
for JFK New York airport:
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Tax rate = 30%
Market value of debt = $ 678m
Market value of equity = € 237m
JFK New York airport’s leveraged Beta = 1,14
Fraport’s Beta ______________________________________________
2. Please explain the method “Beauty Contest and Selection Criteria” in an IPO
process (2 points).
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3. Please calculate Fraport’s P/E ratio and P/B ratio in 2009. Was Fraport rather
overvalued or undervalued at the end of 2009? Explain your conclusion (3
points).
P/E ratio 2009 _______________________________________________
P/B ratio 2009 _______________________________________________
Reason #1: _________________________________________________
Reason #2: _________________________________________________
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4. Valuation (13 points)
Assume the following assumptions were given for Fraport:
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WACC = 9%
g (growth rate of terminal value = 2%)
Today is the year’s end of 2009
The estimated future free cash flows are as follow:
2010 : €0.2bn
2011 : €0.4bn
2012 : €0.7bn
2013 : €1.1bn
2014 : €1.6bn
a) Please derive today’s equity value of Fraport based on discounting Fraport’s
future free cash flows (8 points)!
b) Please compare your result to Fraport’s market cap in 2009. What do you
conclude? (1 point)
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c) Assume your were the CEO of JFK airport (Airport New York) and you
would like to acquire Fraport at the end of 2009. The five free cash flow expectations between 2010 – 2014 would be known to you (see: question 4.a above).
What would you say about the increase from 2010 – 2014? (2 points)
d) The seller has a choice between a discrete approach and a full public auction,
or an approach that falls in between. Please give a short overview on the different approaches (2 points).
5. CAGR (4 points)
Assume the EBIT for Fraport in 2003 was €120m. If you compare this number
to Fraport’s EBIT in 2008 of €335.4m: What would be the CAGR (Compound
Annual Growth Rate) of Fraport’s EBIT between 2003 and 2008?
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3. General valuation issues (23 points)
3.1 Transaction Multiples (8 points)
a) Assume “BAA plc” would be taken as the only company within
Fraport’s peer group. BAA plc is operating seven airports – among these
are London Gatwick, London Heathrow and London Stansted. Ferrovial
bought BAA in 2006 and delisted it. Assume the EV/EBITDA multiple
of the transaction would have been 5.0. Calculate Fraport’s equity value
based on BAA’s EV/EBITDA multiple and Fraport’s 2009 financial figures (5 points).
Equity value of Fraport: _____________________________
b) Where do you see the limitation of the approach described under 3.1.a)?
(2 points)
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c) Do you consider EV/Sales or EV/EBITDA to be a better multiple for the
calculation of Fraport (1 point)?
3.2 Market value orientated valuation (6 points)
a) According to EU regulation listed companies domiciled in a member state of
the EU need to use IFRS for consolidated financial reporting. Therefore, Fraport
publishes according to IFRS. Assume Fraport bought 80 securities of Daimler
and 12 securities of BMW in January 2009. The price was €190 for Daimler and
$500 for BMW. At the end of 2009 the price for Daimler will have decreased to
€122 and the price for BMW will have increased to €583. How would Fraport’s
balance sheet position “Daimler and BMW shares” look like? In other words:
How many Euros would they have booked under this position (4 points)?
b) How would the answer look like in case that Fraport did not publish
according to IFRS but according to HGB? (2 points)
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3.3 WACC (5 points)
a) What does the term “tax shield” mean (1 point)?
b) Derive Fraport’s current WACC based on the financial data mentioned
under section “1) Fraport – is it for sale?” and the following further assumptions (4 points):
a. Rf = 3.5%
b. Rm = 8%
c. Beta = 0.94
d. Cost of debt = 5.5%
e. Tax rate = 30%.
Current WACC
___________________________________________
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3.4 Private equity (4 points)
a) Name two international private equity companies and two international law
firms (2 points).
b) Private equity companies use the IRR (Internal Rate of Return) for evaluating
transactions. Briefly describe the meaning of the term of technique “IRR” (2
points).
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4. Let’s think (3 extra points)
English version:
The task is to measure exactly 45 minutes. The only tool to be used is two
match cords and a lighter. Both match cords need exactly one hour to fully burn
down. It is not known whether they burn down with the same speed or how long
they are. Both match cords are also not necessarily identical.
How can you measure 45 minutes?
Deutsche Version:
Es geht darum, 45 Minuten zeitlich abzumessen. Einziges Hilfsmittel sind ein
Feuerzeug und zwei Zündschnüre, von denen nur bekannt ist, dass sie jeweils
exakt eine Stunde brauchen, um abzubrennen. Es ist nicht bekannt, ob sie mit
gleichmäßiger Geschwindigkeit abbrennen oder wie lang sie sind. Die beiden
Zündschnüre sind auch nicht unbedingt identisch.
Wie können Sie 45 Minuten messen?
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