Advance Fuel Corporation Case
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 …show more content…
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.