(a) Estimation of growth rates for projecting financial statements is one of the steps in valuation of enterprises. Identify and discuss three sources of information for estimation of growth rates for projecting financial statements

(b) The extracts of the financial statements of ABC Steel Fabrications for the most recent period (year 2020) is as shown below.

INCOME STATEMENT

	Sh' Million
Revenue	500
Costs (except Depreciation)	360
Depreciation	37.5
Total Operating Costs	397.5
Earnings Before interest and tax	102.5
Less interest	13.9
Earning before tax	88.6
Taxes @30%	26.58
Net Income before preferred dividends	62.02
Preferred dividends	6
	56.02
Common dividends	40.8
Addition to retained Earnings	15.22
Number of shares	10
Earnings per share	5.602
Dividend per share	4.08

BALANCE SHEET

	Sh' Million
ASSETS
cash	5.3
marketable Securities	49.9
Accounts Receivable	53
Inventories	106
Total Current Assets	214.2
Net Plant and Equipment	375
Total Assets	589.2
LIABILITIES AND EQUITY
Accounts payable	9.6
Notes payable	69.9
Accruals	27.5
Total Current Liabilities	107
Long-Term bonds	140.8
Preferred Stock	35
Common stock	160
Retained Earnings	146.4
Common equity	306.4
Total Liabilities and Equity	589.2

Additional information:

(i) The revenues of ABC Steel Fabricators are expected to grow at an annual rate of 10% each year for five years and 3% each year thereafter forever.

(ii) Elements of the income statement and statement of financial position are expected to grow as revenues

(iii) Property , Plant and Equipment are expected to grow as revenues and are expected to off-set each other with depreciation during the steady state period

Required:

(i) Estimate Free Cash Flow to ABC Steel Fabricators for year 2021, 2022,2023,2024,2025 and 2026

(ii) If the estimated Average Cost of Capital is 8 % during the high growth period and 5% during the steady state period, estimate the value of operations for ABC Steel Fabricators

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