Given the case of Phillip Morris and Kraft, such a valuation was completed and is provided in the Appendix. Since there are several assumptions inherent to the process, those used in the analysis are as follows.
Tax Rates
Tax rate on income are consistent between the companies. The tax rate on income was not provided for either firm. While the taxes paid each year are available in respective financial statements, it is impossible to know how each firm addressed prepayment of future taxes or tax deferment without the full notes to financial statements. As such, an assumption is made that both firms are paying corporate tax of 34% annually.
Growth
Expected growth is only forecast for Kraft for two years. While there is some information regarding Phillip Morris sales, it is not in the form of financial forecasts. However, given some information regarding general market conditions, as well as industry performance, one can make some educated assumptions regarding growth as provided in table 1 below.
Table 1
Phillip Morris Kraft
Expected growth rate - next 5 years 7.5% 12.0%
Expected growth rate - next 5 years 5% 9.0%
