Buit plc is trying to estimate its value under the current strategy. The managerial team have forecast the following profits for the next five years:

Depreciation of fixed capital items in each of the first two years is 2m. In each of the following three years it is 3m.

This has been deducted before arriving at the profit figures shown above. In years 1, 2 and 3 capital expenditure

will be 5m per year which both replaces worn-out assets and pays for fresh investment to grow the business. In the

fourth and fifth year capital expenditure will be 3m.

The planning horizon is four years. Additional working capital will be needed in each of the next four years. This

will be 1m in year 1, 1.2m in year 2, 1.5m in year 3 and 1.8m in year 4.

The company is partially financed by debt it owes 20m and partially by equity capital. The required rate of

return (WACC) is 10 per cent.

The forecast profit figures include a deduction for interest of 1.2m per year, but do not include a deduction for

tax, which is levied at 30 per cent of forecasted profits, payable in the year profits are made.

The company also owns a number of empty factories that are not required for business operations. The current

market value of these is 16m.

a Calculate the future cash flows for the company to an infinite horizon assume year 5 cash flows apply to each

year thereafter. Discount the cash flows and calculate the present value of all the cash flows.

b Calculate corporate value and shareholder value.

profits her the nowt five years: Depreciation of fined capial items in esch of the fint twa years is 42m in each of the following three vears it is 63 . This has heen deducted befors nrivine at the prof figares shown alseve. In vears 1 , 2 and is capital espendiuture The planning horizon is fecer yense Ademwnal working cayitsl will be neded in each of the mext fonar wears. This will be tim in vear l. 212m un wear t, t1.5n in ren i sal t 1.8m in vear 4. aturn (WACC) is 1a per went. market salae of thise is trifom: Required Calculair the future cash faws for the company lo an infinite horiaon - ascamse year 4 cash forms apply to cach war thereaflet. Wiscount bhecasin firws and ialcalate the prisent valise of all the cash flews. Calculate corpocate value and shatrehuscler value. profits her the nowt five years: Depreciation of fined capial items in esch of the fint twa years is 42m in each of the following three vears it is 63 . This has heen deducted befors nrivine at the prof figares shown alseve. In vears 1 , 2 and is capital espendiuture The planning horizon is fecer yense Ademwnal working cayitsl will be neded in each of the mext fonar wears. This will be tim in vear l. 212m un wear t, t1.5n in ren i sal t 1.8m in vear 4. aturn (WACC) is 1a per went. market salae of thise is trifom: Required Calculair the future cash faws for the company lo an infinite horiaon - ascamse year 4 cash forms apply to cach war thereaflet. Wiscount bhecasin firws and ialcalate the prisent valise of all the cash flews. Calculate corpocate value and shatrehuscler value