Ali, a financial analyst at Albaraka Asset Management, has been tasked to assess whether the shares of ABM Steel would be good addition to the funds equity portfolio. ABM stock is currently selling at $50 per share. Ali collected the following financial data on ABM to ascertain the share value based on DCF approach.

Last year revenues were $500 million. Revenues were expected to grow at a rate of 12% for the next two years and then taper off to a steady-state growth rate of 3%.

The firms operating margin and net profit margin has averaged around 20% and 7%, respectively. Given the competitive position of ABM, it is likely to maintain these margins in the future. ABM tax rate is 40%.

ABM had long-term debt of $40 million and interest bearing notes payable of $10 million on its books which was close to the market value. The firm had 10 million shares outstanding. The firm had a stable capital structure with weighted average cost of capital of 14%.

The latest values (t = 0) of net property plant and equipment (NPPE) and NWC as per the balance sheet were, $200 million and $100 million respectively. The firm did not have any surplus (non-operational) cash.

Going forward, Ali estimated that the firm is likely to improve its NWC turnover to 4X. However, its NPPE Turnover is likely to remain at 2.5X

. 7. What is the net operating income after-tax (NOPAT) in year 2? Answer: ___________

8. What is your estimate of the FCFF in year 2? Answer: ___________

9. What is your estimate of the Terminal Value at the end of year 2? Answer: ____________

10. What is the total value of equity?