Zubinos FAQ

This is Zubinos Frequent Ask Questions.

I had done the compilation so everyone do not have to keep on opening back the emails and refer. I am merely trying to ease your reading and mine! I believe this will help those who doesn't get the FAQ email too. So these are all for the Financial Decision Making course( FDM )!!

1) For the recomputation of the cash flow for Zubinos's Cash Flow, Should we use the Approved figures or the Updated figures? Does the Approved figures include the Malaysian expansion or just the European expansion plan?

Since the European expansion is off, you must use with Malaysian expansion. There is only 1 set of figures with the Msian expansion, ie. in the handout.

2) We are required to extrapolate the Cash flow to 10 years but the concern is that after year 5 on what basis do we extrapolate for the Post tax Cash Flow? Constant on the assumption that the growth of Zubinos is zero after year 5 or fluctuation? if Fluctuation, is it going up or down? This quries arise because we do not know the rate of expansion for Zubinos after year 5 as our case only cover till year 5. Should we be optimistic and state that the cash flow increasses steadily or be prudent and state the cash flow goes down?

I had covered this in lecture. The simplest is to use the 5th year figures for the 6th to 10th years. Or to increase the 6th to 10th years by the same percentage growth forecast for Year 5 or for average growth in 1st to 5th years. Any other reasonable projections can be accepted, just state your assumptions. (This is a common problem you will face in real life, if you cannot get the Finance director to provide you with projections).

3) In the case study, it is stated that the updated cash flow does not include the increase in coffee price and currency risk in 2006. Does that mean only the year 2006 needs to be adjusted for the currency and coffeee price increase or all the 10 years? I was in the opinion it was for all but my team mates were stating it sounded only for 2006.

I will say all 5 years. But the student sample answer in BPP assumed only 2006. You decide.

4) In regards for the capital expanditure, what is the capital expanditure if Zubinos enters into a joint venture in Malaysia? Besides that, is Malaysia the only expansion for Zubinos? Does Zubinos enter into the European market after year 5? If yes, at what rate?

Use back the same capex as in the Pre-seen data on page 151. But you may adjust if you think necessary eg. reducing the capex if you feel cost in Msia is lower than Europe. Just state your assumptions.

5) Terminal value. Due to the queiry in 4), we are cracking our heads here. We do not know how many shops Zubinos has in year 10 and how much capital expanditure did Zubinos incure.

Look at the capex and just make an assumption as you also know the age of the capex. The important thing is I want you to learn this principle which will help you to increase the valuation as a seller in real life.

Disclaimer : These information is only for education purpose and solely for education only. The information is not suppose to be copied or distributed elsewhere without the concession of the related parties or you will be classified as copyrights infringement. If the authors are offended or feel any infringement involved please contact me at elite_villain@hotmail.com. Thank you for your cooperation.
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