Question 4 On the next page of the examination paper, you are provided with a table that includes the following for Simpleval Inc for 2018 (Actual) and 2019 to 2024 (Forecast) Net Operating Profit After Tax (NOPAT) for each year Net Operating Assets at each year end Annual growth rates for each of the above Net financial liabilities at the 2018 year end Book value of equity at the 2018 year end The weighted average cost of capital (WACC) 10 REQUIRED a) Using the data provided in the table, estimate the value of the equity capital of Simpleval Inc using each of the following two valuation models (In implementing the valuation models, you may assume that both free cash flow and abnormal operating profit grow at the rate of 2 after 2022 (i e , from 2023 onwards) in perpetuity ) The Free Cash Flow Valuation Model Within your answer, you should calculate free cash flow for each year from 2019 to 2024 using the method denoted in the AcF308 course as 'Method 1' and The Abnormal Profit Valuation Model (APVM) Within your answer, you should calculate abnormal operating profit for each year from 2019 to 2024 Note In answering this part of the question, assume that the only adjustment required in order to get from the value of the operating entity to the value of equity relates to net financial assets or liabilities The following table relates to question 4 Simpleval Inc ACTUAL 2018 FORECAST FORECAST FORECAST FORECAST FORECAST 2022 2019 2020 2021 2023 NOPAT 2,850 000 3,300 000 3,000 000 3,150 000 Growth 3,366 000 3,433 320 0 020 0 020 0 050 0 048 Net operating assets 22,500 000 24,300 000 25,500 000 27,000 000 28,090 800 27,540 000 0 020 Growth 0 049 0 059 0 020 Net financial liabilities 6,000 000 Book value of equity 16,500 000 WACC 10 FORECAST 2024 3,501 986 0 020 28,652 616 0 020 The following table relates to question 4 Simpleval Inc ACTUAL 2018 FORECAST FORECAST FORECAST FORECAST FORECAST 2022 2019 2020 2021 2023 NOPAT 2,850 000 3,300 000 3,000 000 3,150 000 Growth 3,366 000 3,433 320 0 020 0 020 0 050 0 048 Net operating assets 22,500 000 24,300 000 25,500 000 27,000 000 28,090 800 27,540 000 0 020 Growth 0 049 0 059 0 020 Net financial liabilities 6,000 000 Book value of equity 16,500 000 WACC 10 FORECAST 2024 3,501 986 0 020 28,652 616 0 020

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Question 4 On the next page of the examination paper, you are provided with a table that includes the following for Simpleval Inc for 2018

Question 4 On the next page of the examination paper, you are provided with a table that includes the following for Simpleval Inc for 2018 (Actual) and 2019 to 2024 (Forecast):

Net Operating Profit After Tax (NOPAT) for each year.

Net Operating Assets at each year end.

Annual growth rates for each of the above.

Net financial liabilities at the 2018 year end.

Book value of equity at the 2018 year end.

The weighted average cost of capital (WACC): 10%. REQUIRED

a) Using the data provided in the table, estimate the value of the equity capital of Simpleval Inc using each of the following two valuation models. (In implementing the valuation models, you may assume that both free cash flow and abnormal operating profit grow at the rate of 2% after 2022 (i.e., from 2023 onwards) in perpetuity.) The Free-Cash-Flow Valuation Model. Within your answer, you should calculate free cash flow for each year from 2019 to 2024 using the method denoted in the AcF308 course as 'Method 1'. and The Abnormal Profit Valuation Model (APVM). Within your answer, you should calculate abnormal operating profit for each year from 2019 to 2024. image text in transcribed Note: In answering this part of the question, assume that the only adjustment required in order to get from the value of the operating entity to the value of equity relates to net financial assets or liabilities

The following table relates to question 4: Simpleval Inc ACTUAL 2018 FORECAST FORECAST FORECAST FORECAST FORECAST 2022 2019 2020 2021 2023 NOPAT 2,850.000 3,300.000 3,000.000 3,150.000 Growth: 3,366.000 3,433.320 0.020 0.020 0.050 0.048 Net operating assets 22,500.000 24,300.000 25,500.000 27,000.000 28,090.800 27,540.000 0.020 Growth: 0.049 0.059 0.020 Net financial liabilities -6,000.000 Book value of equity 16,500.000 WACC 10% FORECAST 2024 3,501.986 0.020 28,652.616 0.020 The following table relates to question 4: Simpleval Inc ACTUAL 2018 FORECAST FORECAST FORECAST FORECAST FORECAST 2022 2019 2020 2021 2023 NOPAT 2,850.000 3,300.000 3,000.000 3,150.000 Growth: 3,366.000 3,433.320 0.020 0.020 0.050 0.048 Net operating assets 22,500.000 24,300.000 25,500.000 27,000.000 28,090.800 27,540.000 0.020 Growth: 0.049 0.059 0.020 Net financial liabilities -6,000.000 Book value of equity 16,500.000 WACC 10% FORECAST 2024 3,501.986 0.020 28,652.616 0.020