Advance Fuel Corporation Case

4709 words 19 pages
Advanced Fuels Corporations
Financial Analysis and Forecasting

Wai Wai Yung
Wing Man Tsoi


Advanced Fuels Corporation (AFC) was founded five years ago by Dr. Zachary Aplin. In the fourth year of research he and his two –member staff made a major break-through that can convert grain waste products into ethanol which can mix with gasoline to produce a better burning automobile fuel. Producing ethanol from waste products would lower its cost dramatically so the market potential of the blended fuel would be increased. After AFC receiving a patent for Dr. Aplin’s unique ethanol production process he decided to broaden the scope of operations of the company but he doesn’t have additional funds to put in. So, he developed
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This can get the bank an idea of AFC’s financial needs. All of the above are based on study and now it is time to some techniques to determine the how the actual outcome of AFC’s proposal will be differ from what we assumed. Sensitivity analysis will be used here on the pro forma cash flow and revenue to see if it is a good decision for the back to enter.

If everything of AFC seems positive up till now then we would need to make a financing proposal for the equipment, land and facilities to see how much we should lend to AFC. We will consider the discounted cash flow approach, liquidation approach, adjusted tangible value approach, multiple of earning approach and replacement value approach to see which is the most appropriate.

Discounted cash flow approach:
The discounted cash flow approach recognizes that the value of a business is a function of the timing, riskiness, and amounts of cash flow that the business generates. There are three steps are involved. First historical financial data and current trends are used to forecast the firm's future cash flows to equity holders. Second is to determine a discount rate base on the risk. Third is to calculate the present value of the cash flows that arrive at the equity value. This method is the most comprehensive valuation technique.

Liquidation approach:
Liquidation value


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