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.

frofits ho the noxt five years: Depreciation of figed capial items in esch of the first two years is 22m. In each of the folkwing three sears it is f3Th. This has been deseeted before. Friving at the . rof figures chown abowe. In years. 1 , 2 and 3 capital expenditure will be +5m ner near which hath replacs winnsoul newts and poys for fresh invest ment to grow the husiness. in the The planning horizon a fier yenra Addsonal working capital will be needed in each of the zest fon years. This atum (WACXC) is 13 per icht. tak. which is lened at in per ceat of forecasted feofits, puynhle in the year profits are made. marker salme of these is tisir: Reasured year therediet. Biswasal he cash fows and walealale the prisent valise of all the cash flews. b Calcalasc corporabe valac and sharehoder value profis ho the ncet the years: Depreciation of fiwed capial items in ench of the fins two years is 52m. In each of the following three wears it is fSM. This has been dasucted hefore wrivine yf the profi fiemares chowa abowe. In pears 1 , 2 and 3 capital expenditure wetarn (WACXC) is ta per cert. tax. which is lexidd at si per ceat of foncestied profics, pareble in the year profits are made. market saine af sture is tocim: Reguined Calculais the finure cash naws foe the comyany to an infinite ancixon a accmo year $ cach faciss apply to cach War thereafles. Siswomat he cash firras and calcalale the prisent valse of all the cash flews. B Calculate corpora ie valar and sharchoikler value frofits ho the noxt five years: Depreciation of figed capial items in esch of the first two years is 22m. In each of the folkwing three sears it is f3Th. This has been deseeted before. Friving at the . rof figures chown abowe. In years. 1 , 2 and 3 capital expenditure will be +5m ner near which hath replacs winnsoul newts and poys for fresh invest ment to grow the husiness. in the The planning horizon a fier yenra Addsonal working capital will be needed in each of the zest fon years. This atum (WACXC) is 13 per icht. tak. which is lened at in per ceat of forecasted feofits, puynhle in the year profits are made. marker salme of these is tisir: Reasured year therediet. Biswasal he cash fows and walealale the prisent valise of all the cash flews. b Calcalasc corporabe valac and sharehoder value profis ho the ncet the years: Depreciation of fiwed capial items in ench of the fins two years is 52m. In each of the following three wears it is fSM. This has been dasucted hefore wrivine yf the profi fiemares chowa abowe. In pears 1 , 2 and 3 capital expenditure wetarn (WACXC) is ta per cert. tax. which is lexidd at si per ceat of foncestied profics, pareble in the year profits are made. market saine af sture is tocim: Reguined Calculais the finure cash naws foe the comyany to an infinite ancixon a accmo year $ cach faciss apply to cach War thereafles. Siswomat he cash firras and calcalale the prisent valse of all the cash flews. B Calculate corpora ie valar and sharchoikler value