5 I (b) The following data is in respect of a company. You are required to use the data in determining the value of operations of the company. The data is for the most recent period and five year projects (figure in million Kenya shillings). Turnover Fixed capital investment Working capital investment Non-cash charges Earnings before interest and tax (EBIT) PROJECTED Year 0 Year 1 Year 2 Year 3 20 22 24.2 26.62 4 4.4 4.84 5.32 2 2.2 2.42 2.66 2 2.2 2.42 2.66 10 11 12.1 13.31 Year 4 29.29 5.86 2.93 2.93 Year 5 32.21 6.44 3.22 3.22 14.64 16.11 Additional information (1) After year five, turnover, working capital investment, fixed capital investment, EBIT and non-cash charges are expected to grow at annual rate of five per cent each year into the foreseeable future. Weighted average cost of capital has been estimated to be 12% for the first five years and 8 percent in the stable growth period. Tax rate applicable is 30 per cent. 1 Required (1) Compute free cash flow to the company for years 0, 1, 2, 3, 4 and 5. (6 marks) (ii) Compute the growth rate for the listed variables for years 1, 2, 3, 4 and 5. (3 marks) (11) Compute the value of operations of the company. (6 marks) (iv) Compute the terminal value. (5 marks) QUESTION TWO The following is a presentation of re-organized financial statements of ABC Limited for the most recent period and five year projections. Figures in million Kenya shillings. ACTUSZ PROJECTED 0 1 72 3 4 5 400 480 576 691.2 829.44 995.328 Assets (NET) 5 I (b) The following data is in respect of a company. You are required to use the data in determining the value of operations of the company. The data is for the most recent period and five year projects (figure in million Kenya shillings). Turnover Fixed capital investment Working capital investment Non-cash charges Earnings before interest and tax (EBIT) PROJECTED Year 0 Year 1 Year 2 Year 3 20 22 24.2 26.62 4 4.4 4.84 5.32 2 2.2 2.42 2.66 2 2.2 2.42 2.66 10 11 12.1 13.31 Year 4 29.29 5.86 2.93 2.93 Year 5 32.21 6.44 3.22 3.22 14.64 16.11 Additional information (1) After year five, turnover, working capital investment, fixed capital investment, EBIT and non-cash charges are expected to grow at annual rate of five per cent each year into the foreseeable future. Weighted average cost of capital has been estimated to be 12% for the first five years and 8 percent in the stable growth period. Tax rate applicable is 30 per cent. 1 Required (1) Compute free cash flow to the company for years 0, 1, 2, 3, 4 and 5. (6 marks) (ii) Compute the growth rate for the listed variables for years 1, 2, 3, 4 and 5. (3 marks) (11) Compute the value of operations of the company. (6 marks) (iv) Compute the terminal value. (5 marks) QUESTION TWO The following is a presentation of re-organized financial statements of ABC Limited for the most recent period and five year projections. Figures in million Kenya shillings. ACTUSZ PROJECTED 0 1 72 3 4 5 400 480 576 691.2 829.44 995.328 Assets (NET)