Sample Task
This sample task is provided for illustration only. The scores may not reflect a model's overall performance within this domain. Overall domain scores represent the average across 400 held out prompts.
Provided with two source files.
Imagine you're advising Medtronic, which is looking for ways to create shareholder value. One of the strategies they are considering is spinning off their diabetes segment. You are asked to create a valuation for a stand-alone public entity of the diabetes segment. The information you need to calculate is the present value of free cash flow for the next five years and the present value of the terminal value for the diabetes segment based on an EV/EBITDA multiple. Your comp set is Dexcom, Inc., and Insulet Corporation, and keep present value calculations as of April 26, 2024. Moreover, round your answers to two decimals and use the assumptions below.
Assume that 10% of diabetes segment’s assets, less goodwill and other intangible assets, is PP&E, and the rest is considered Other Operating Assets. Further assume that these Other Operating Assets are current. Assume the diabetes segment’s intangible assets are 5% of Medtronic WholeCo’s intangible assets, and that the segment’s amortization expense each year is at the same percentage of WholeCo’s. Additionally, assume a working capital ratio of 2, a WACC of 8%, and a tax rate of 23%. Lastly, assume that the previous years' NWC for the diabetes segment was $500 million.
Below are the following deliverables:
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Please calculate the following information attributed to the diabetes segment for FY2024: the amount of PP&E, capex, other operating assets, net working capital, change in net working capital, the amortization attributed to the diabetes segment, EBITDA, and free cash flow.
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Please calculate the following information as of April 26,2024: Median EV/EBITDA multiple for the comparables.
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Assume for the next 5 years (projected period), that FCF grows at 4% y/y and EBITDA grows at 6% y/y. Calculate the present value of cash flows for the 5 years, as well as the present value of the terminal value. Use the EBITDA exit multiple method.
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Finally, add the present value of cash flows during the projected period and terminal value to come up with a valuation for Medtronic’s diabetes segment.