As indicated in the email earlier today, in the investment meeting, it was decided to further investigate a possible bid for Phakama Energy Ltd. Additional work is however required before we can make a bid for Phakama Energy Ltd. As indicated in the pre-seen, Phakama Energy Ltd is listed on the Johannesburg Stock Exchange (JSE). We have obtained the following information to prepare a forecast, that should be used to value Phakama Energy Ltd, in addition to the extracts of key financial information has been obtained and provided regarding Phakama Energy Ltd, relating to the most recent financial period (2022) below. PHAKAMA ENERGY LTD EXTRACT OF STATEMENT OF PROFIT OR LOSS FOR THE YEARS ENDED 31 DECEMBER 2022 Additional information: The gross profit amount of R990 million in 2022 is made up of revenue amounting to R1 570 million, and cost of sale amounting to R580 million. Revenue is expected to rise at 11% per year for the next 3 years (with the high demand for electricity) and then stay constant thereafter. Cost of sales is expected to rise at 9% per year for the next 3 years and then stay constant thereafter. Assume that operating expenses are expected to increase to R200 million in 2023 and then stay constant thereafter. Operating expenses include depreciation of R42 million, which is also expected to remain constant. Phakama Energy Ltd has planned annual capital expenditure relating to non-current assets amounting to R30 million each year, and a planned annual increase of R5 million in working capital per year. The non-current assets and working capital investments are expected to stay constant, as planned, in the future. Phakama Energy Ltds finance costs are expected to increase to R40 million in 2023 and then stay constant thereafter.

The marginal tax rate is 28%, payable in the year in which the liability arises. Assume that book depreciation equals tax depreciation. Phakama Energy Ltds cost of equity is 10%.

3.2.1 Calculate the value of the equity in Phakama Energy Ltd (in total) by forecasting future cash flows to equity and discounting them to present value using the cost of equity. 3.2.2 Discuss how the board of Phakama Energy Ltd might implement four pre-bid defences to fight a bid that we may make to the shareholders of Phakama Energy Ltd.

\begin{tabular}{lc} & 2022Rm \\ \hline Gross profit & 990 \\ Operating expenses & (180) \\ Profit from operations & 810 \\ Interest expenses & (35) \\ Income before income taxes & 775 \\ Income tax expenses & (217) \\ \hline Net income after tax & 558 \\ \hline \hline \end{tabular}