Question 4 (20 marks)

You must answer all parts of this question.

Imagine that you want to use the discounted cash flow valuation method to find the fundamental value of Wiseman Plc. You have managed to generate a projection of the free cash flow to the firm (FCFF) for this company for the next four years:

One year from now	Two years from now	Three years from now	Four years from now
12 million	15 million	16 million	17 million

Following this prediction period, you anticipate that the cash flow will continue to grow perpetually at a rate of 3% per annum. Assume that the company will never go bankrupt. The weighted average cost of capital (WACC) is 8.93%.

• a.Calculate the present value of the free cash flows to the firm over the next four years using the WACC rate. (4 marks)
• b.Compute the terminal value of Wiseman Plc and discount it back to express it in present value terms. (6 marks)
• c.Calculate the value of the firm. (4 marks)
• d.Calculate the fundamental stock value if the market value of debt is 77 million and there are 5 million shares outstanding. (6 marks)