A) Using the multi-stage dividend discount model (DDM), calculate the value of FLT shares. Use scrap paper for your workings (15 MARKS).

Assume that dividends in the next three years (starting from year 2017) will grow at a rate of 13% annually. Further, it is assumed that dividends will grow at a rate of 11% for the next four years (year 4 to 7). Thereafter it is assumed that the company will grow at a constant growth rate of 7% per annum. The last dividend paid (for 2016) is $1.52. Assume a required rate of return of 12%.

Clearly show the following:

Present Value of First Stage (4 marks)

Present Value of Second Stage (5 marks)

Present Value with constant growth rate (5 marks)

Stock Intrinsic Value (1 marks)

(A) Using the following data, calculate the equity value of FLT share (value per share). Answer in the box provided (10 MARKS).

Assume that FLT has FCFF of $ 150 million and FCFE of $ 200 million for the last financial year (since the last financial year had many unusual items, we ignore the FCFF/FCFF calculated earlier and use projected values instead). Both FCFF and FCFE are expected to grow at a constant rate of 7% per annum indefinitely. FTLs required rate of return of equity is 12% and the before tax cost of debt is 7%. The company expects a target capital structure consisting of 20% debt financing and 80% equity financing. The tax rate is 30%. Use book value of long-term debt. FLT has 100 million outstanding common shares.

Clearly show the following:

FCFE (4 Marks)

FCFF (6 Marks)

(C) P/E Valuation

The EPS for Flight Centre for 2016 was $2.42 and dividend payment - $1.52. Using fundamental trailing P/E multiple method, calculate the value of the stock by assuming that earnings will grow at a constant rate of 8% per annum indefinitely. FTLs required rate of return is 12% and before tax cost of debt is 7%. Assume that FLT will maintain the current dividend pay-out ratio. (5 marks)

FY 2014 2,212.40 1,818.00 394.40 FY 2015 FY 2016 2,367.40 2,640.30 2,009.90 2,278.20 357.60 362.20 86.99 94.44 90.85 53.80 66.10 54.10 3.10 3.50 1.40 427.95 387.39 389.14 - 29.50 24.30 28.10 15.00 -5.10 -3.80 3.50 3.10 -1.40 379.95 116.86 In Millions of $AUD Revenue -COGS Gross Profit + Other Operating Revenue - Depreciation & Amortization - Other Operating Expenses EBIT - Interest Expense - Foreign Exchange Losses (Gains) - Net Non-Operating Losses (Gains) Pre-tax Income - Income Tax Expense Net Income (loss) In Millions of $AUD Assets + Cash & Near Cash Items + Short-Term Investments + Accounts Receivable + Inventories Total Current Assets + Net Fixed Assets + Gross Fixed Assets - Accumulated Depreciation + Other Long-Term Assets Total Long-Term Assets Total Assets 365.09 109.74 255.34 FY 2015 366.24 100.49 265.75 FY 2016 263.09 FY 2014 1,261.70 1,378.00 1,316.00 204.50 41.20 75.70 537.60 635.50 672.20 47 63.6 70.5 2,152.80 1,887.50 161.00 2,263.20 216.30 196.30 383.10 465.60 533.30 222.10 269.30 317.00 361.90 438.90 521.80 522.90 635.20 738.10 2,410.40 2,788.00 3,001.30 Liabilities & Shareholders' Equity + Accounts Payable 1040.5 1056.2 1487.1 + Short-Term Borrowings 42.90 32.80 76.80 Total Current Liabilities 1261.20 1452.50 1566.70 + Long-Term Borrowings 51.4 65.30 88.60 Total Long-Term Liabilities 51.40 65.30 88.60 Total Liabilities 1312.60 1517.80 1655.40 + Share Capital 363.76 432.64 423.35 + Retained Earnings 734.04 837.49 922.60 Total Equity 1097.80 1270.12 1345.95 Total Liabilities & Equity 2410.39 2787.97 3001.32 Cash Flow Information (inflows in positive & outflows in negative) In Millions of SAUD FY 2014 FY 2015 FY 2016 Capital Expenditures 55.43 -82.85 - 103.79 Disposal of Fixed Assets 0.00 0.00 17.20 Additional Long Term Debt 3.13 33.32 33.30 Cash Dividends Paid - Total -146.78 -153.11 -158.35 Reduction In Long Term Debt -1.48 -17.43 - 10.00