QUESTION 4 (24marks)

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 shares of Isilumko (Pty) Ltd.

You have the following extracts from the company's financial statements at your disposal:

Proforma income and operatin 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.

The company's weighted average cost of capital is 12%.

Isilumko (Pty) Ltd's authorized and issued share capital is 100 shares at R1.00 each.

Requiired:

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.