Foundations of Corporate Finance and Banking

FOUNDATIONS of

CORPORATE FINANCE AND BANKING

International Master in Economics and Finance – 2010/2011

Handed in to: Prof. Giorgio Bertinetti

oliver.kristen@gmx.at Oliver Kristen 24/03/2011

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1. Scenario

A new private company was founded in order to operate the Italian food market. It is

assumed that the company will be registered in Italy and thus subject to corporate tax

according to Italian law. The Italian marginal tax rate for corporations is 31.4%.1

The company is interested in selling a 30% stake to an international investment

company.

The company spent many months studying the market, engineering the products and the

commercial strategy as well as locating production plants.

At the end of 2010 the business plan is ready and the company has already participated

at an exhibition where many potential customers said to be very interested in the

project.

The business idea is:

 Manufacturing in Italy - thanks to well known reliable partners- in order to

maintain high quality. This way the company will be the leader in the market;

 Creating franchising shops, in order to develop the brand and the customers

loyalty

 Letting the franchisee pay weekly only the final goods he has already sold.

A "private equity" institution got in touch with the company in order to buy 30% of the

company, issuing shares.

For this reason we were approached at the beginning of January 2011 to come up with a

company valuation.

After weeks of negotiating with the client we eventually agreed to take on the contract

and presented our company valuation per end of March 2011.

Such is enclosed below.

1 We suggest adjusting the forecasts for net Free Cash Flows in the provided material with regard to the new

tax rate.

oliver.kristen@gmx.at Oliver Kristen 24/03/2011

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