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SESS0040 Individual Coursework
“Blue Orchard plc” recapitalisation, valuation, and financing policy
Word limit 1,500 words for narrative text. Not in word count Tables, figures, references, and appendices. Mandatory tables allowance You must include Tables 1–9 and Sensitivity Tables A–C. These do not count toward the 1,500 words. Deadline: Monday 23rd March 2026, 3pm. Submission One PDF report plus one spreadsheet (Excel). Permitted tools Excel or Google Sheets. Data rule Use only the data provided in this brief for all calculations. Do not bring in outside numbers. Text Formatting Font: Times New Roman 12, Line Spacing: 1. Table Formatting Times New Roman 10, Line Spacing: 1
Purpose
You advise the board of Blue Orchard plc on a recapitalisation decision. The board considers three capital structure policies. You must value the firm under each policy using WACC and APV, test constraints, run prescribed sensitivities, then recommend a policy with a risk register. This is a corporate finance task. Precision matters. So does judgment. You will be marked on both.
As-of date, currency, and units
As-of date: 31 December 2025 Currency: USD All monetary values: USD millions unless stated otherwise Rates: percent per annum Time: years Data provided in this brief Use the inputs below exactly. Do not use outside data. All values are USD millions unless stated otherwise. Baseline inputs and rating metrics convention Equity value for WACC weights E = 360,000. Gross debt base = 38,000. Cash base = 12,000. EBITDA base for rating metrics = 22,500. EBIT base for rating metrics = 18,400. Interest expense base for rating metrics = 1,250. Rating metrics convention. EBITDA and EBIT are unchanged across policies. Only net debt and interest expense change as specified. Policy inputs Policy A status quo. Transaction: no transaction. One-off fees 0.0. Gross debt 38,000.0. Cash 12,000.0. Shares repurchased 0.0. Interest expense for rating metrics 1,250.0. Policy B moderate buyback. Transaction: debt-funded share repurchase. Incremental gross debt issued 10,000.0. Shares repurchased value 9,800.0. One-off fees 200.0 paid immediately from cash. Pro forma gross debt 48,000.0. Pro forma cash 11,800.0. Interest expense for rating metrics 1,720.0. Policy C aggressive buyback. Transaction: debt-funded share repurchase. Incremental gross debt issued 24,850.0. Shares repurchased value 24,500.0. One-off fees 350.0 paid immediately from cash. Pro forma gross debt 62,850.0. Pro forma cash 11,650.0. Interest expense for rating metrics 2,600.0.
Definitions and valuation mechanics
Use these definitions exactly.
- Net debt = gross debt minus cash
- Enterprise value (EV) = equity value plus net debt
- Net debt to EBITDA = net debt divided by EBITDA
- EBIT to Interest = EBIT divided by interest expense
- Pre-tax cost of debt = risk-free rate plus credit spread
- After-tax cost of debt = pre-tax cost of debt × (1 − tax rate)
- Cost of equity = risk-free rate + levered beta × equity risk premium
Forecast structure
- Explicit horizon N = 5
- Terminal growth g base = 2.00%
- Terminal value at year 5: TV5 = FCFF5 × (1 + g) / (WACC − g)
- Discount at year-end
FCFF series (use as given)
Year 1 to 5 FCFF: 13,200.0; 13,600.0; 14,000.0; 14,400.0; 14,800.
APV unlevered discount rate
Use Ku = 6.40% for all policies
Tax rate
Tax rate = 21.00%
Risk-free rate and ERP
Risk-free rate = 4.00% Equity risk premium base = 5.50%
Beta rule
Levered beta = 0.55 for all policies
Equity value convention for WACC weights
Hold equity value constant across policies for weighting: E = 360,000.
WACC weights
Use net-debt weights (as instructed): WACC = (E / (E + ND)) × Re + (ND / (E + ND)) × Rd_after_tax Where E is equity value for weights (fixed at 360,000.0), ND is net debt (gross debt minus cash), Re is cost of equity, and Rd_after_tax is after-tax cost of debt. with E fixed at 360,000.0 and ND = gross debt − cash
Rating and spreads
Use the rating grid and spreads table provided. If thresholds conflict, assign the lower rating. You will compute:
- Net debt to EBITDA and EBIT to Interest for each policy
- Implied rating via the grid
- Credit spread via the spread table
Board constraints
Chosen policy must satisfy BOTH:
- Implied rating of A or above
- Net debt to EBITDA must not exceed 2.00 (tighter internal constraint)
Policies (use as given)
Policy A status quo Policy B moderate buyback Policy C aggressive buyback Use the pro forma debt, cash, interest expense, repurchase values, and one-off fees exactly as stated. Do not “improve” them.
Deliverable structure
Submission file names Name your files as SESS0040_CW_.pdf and SESS0040_CW_.xlsx. Academic integrity and tool use You may use spreadsheets and calculators freely. If you use any AI tool for drafting, checking, or coding, disclose it in an appendix titled Tool Use. You remain responsible for the calculations, the spreadsheet logic, and the final memo.
A Board memo (PDF)
Use the exact headings below, in this order. No extra headings.
- Executive summary
- Inputs and definitions used
- Policy tables
- Valuation tables
- Reconciliation
- Sensitivity tables
- Recommendation and risk register
B Spreadsheet (Excel)
Must contain:
- A single clearly labelled Inputs tab mirroring Table 1
- A Calculations tab
- An Outputs tab with Tables 2–9 and Sensitivity A–C exactly as in the PDF
Required tables
You must include the following tables with the exact column labels. All three policies must appear as rows where relevant. Table 1 Inputs and definitions used Input name | Value | Units | Source within brief Table 2 Policy table Policy | Transaction description | Gross debt | Cash | Net debt | Shares repurchased | One off fees Table 3 Rating metrics Policy | Net debt to EBITDA | EBIT to Interest | Implied rating Table 4 Cost of debt Policy | Credit spread | Pre tax cost of debt | After tax cost of debt Table 5 WACC inputs Policy | Equity value | Net debt | Enterprise value | Levered beta | Cost of equity | WACC Table 6 WACC valuation Policy | PV of FCFF years 1 to N | Terminal value PV | Enterprise value Table 7 APV components Policy | Unlevered enterprise value | PV tax shields | PV expected distress costs | PV issuance and transaction fees | APV enterprise value Sensitivity table A equity risk premium Policy | EV at low shock | EV at base | EV at high shock Sensitivity table B terminal growth rate Policy | EV at low shock | EV at base | EV at high shock Sensitivity table C EBITDA margin Policy | EV at low shock | EV at base | EV at high shock
Marking scheme (100 points)
1 Technical accuracy and compliance (40)
2 Internal consistency and reconciliation (20)
3 Sensitivity execution and interpretation (20)
4 Critical thinking responses (15)
5 Presentation and spreadsheet auditability (5)
