Question 4 [24] You are invited to the shareholders meeting where they will discuss the disposal of 20% of the shares of Isilumko (Pty) Ltd to one of their biggest suppliers, Lucky (Pty) Ltd. To prepare for this meeting you are required to calculate the value of the shares of Isilumko (Pty) Ltd. You have the following extracts from the companys financial statements at your disposal: Proforma income and operating expenses of Isilumko (Pty) Ltd for the years 2022 -2024 2024 2023 2022 Income 4 350 000 3 875 000 3 215 400 Cost of sales (2 827 500) (2 441 250) (1 993 548) Gross profit 1 522 500 1 433 750 1 221 852 Operating expenses Accounting fees (150 000) (142 000) (138 000) Bank charges (89 000) (78 000) (69 000) Depreciation (50 000) (30 000) (20 000) Finance cost (30 000) (28 000) (22 000) Water and electricity (112 000) (100 800) (90 720) Salaries and wages (104 500) (139 950) (64 832) Profit before tax 987 000 915 000 817 300 Taxation (276 360) (256 200) (222 844) Profit after tax 710 640 658 800 594 456 The company expects the cash flow to grow at 4% each year.

SUMMATIVE ASSESSMENT 2021 FIRST SEMESTER FMA101 FINANCIAL MANAGEMENT I

Page 9 of Summative Assessment

The companys weighted average cost of capital is 12%. Isilumko (Pty) Ltds authorised and issued share capital is 100 shares at R1.00 each. Required: Calculate the value of 20% of the shares of Isilumko (Pty) Ltd using the free cash flow method. Round off your final answer to the nearest rand.