QUESTION THREE OUESTION $2$HREE

As a student of corporate valuation, you have been given the task of estimating the

fundamental value of Highway Limited, givastlao You have been provided with the

following schedules.

Schedule :: Finance Schedule

Schedule $2$: Income Statement Schedule

Revenue

Cost of sales

Other operating expenses

Depreciation

Interest expense

Eamings before tax

Tax expenses

Earning After tax

Schedule $3$: Depreciation

Depreciation

Depreciation

$2015($Actual$)$

$S^i$ million

$60$

$2016($Projected$)$

Sh$\text{'}$ million

$600$

$\frac{(150)}{450}\frac{(60)}{390}\frac{(70)}{320}\frac{(0)}{314}\frac{(94\mathrm{.}2)}{219\mathrm{.}8}$

$2016($Projected$)$

S$\text{'}$h$\text{'}$ million.

$70\sqrt[\phantom{2}]{?}$

Schedule $4$; Worlaing Canital Items Schedule $5$: Non$-$Current Assets $($NCA$)$

Acditionsl Inionnation:

$($i$)$ After accounting period $2016,$ free cash flow to the firm is expected to grow at an

annusl rate of five percent for the next eleven years and three percent thereafter

forever.

$($ii$)$ Bstimated discounted rate is eight percent during the high growth period and five

percent during the steady state.

Riequired:

Using the Free cash flow to the Firm model, estimate the value of Highway

limited$.$

$(25$ mariks$)$

As a student of corporate valuation, you have been given the task of estimating the fundamental value of Highway Limited, giver the You have been provided with the following schedules.

Schedule $1$: Finance Schedule

$2015($Actual$)$

Shs$\text{'}$ Million

$2016($Projected$)$

Shs$\text{'}$ million

$100$

$100$

$70$

$150$

$40$

$60$

Ordinary share capital

Retained Earning

$10\%$ Debt

Schedule $2$: Income Statement Schedule

$2015($Actual$)$

$2016($Projected$)$

Sh$\text{'}$ million

Sh$\text{'}$ million

Revenue

$400$

$600$

Cost of sales

$(100)$

$(150)$

$300$

$450$

Other operating expenses

$(50)$

$(60)$

$250$

$390$

Depreciation

$(60)$

$(70)$

$190$

$320$

Interest expense

$(4)$

$(0)$

Earnings before tax

$186$

$314$

Tax expenses

$(55\mathrm{.}8)$

$(94\mathrm{.}2)$

Earning After tax

$130\mathrm{.}2$

$219\mathrm{.}8$

Schedule $3$: Depreciation

$2015($Actual$)$ Sh'million

$2016($Projected$)$

Sh$\text{'}$ million lion

Depreciation

$60$

$70$

Schedule $4$: Working Capital Items

$2015($Actual$)$

$2016($Projected$)$

Sh$\text{'}$ million

Sh$\text{'}$ million

Cash

$10$

$20$

Accounts Receivable

$15$

$10$

Inventory

$35$

$50$

Account Payables

$(5)$

$(10)$

Accruals

$(2)$

$(5)$

Notes Payable

D

$(3.)$

$3$

Schedule $5$: Non$-$Current Assets $($NCA$)$

$2016($Projected$)$

Sh$\text{'}$ million

$250$

$150$

$120$

$85$

Machinery $($Cost$)$

Equipment $($Cost$)$

$2015($Actual$)$

Sh$\text{'}$ million

$200$

$100$

$100$

$35$

Acc. Depreciation $($machinery$)$

Acc. Depreciation $($Equipment$)$

Additional Information:

$(1)$ After accounting period $2016,$ free cash flow to the firm is expected to grow at an annual rate of five percent for the next eleven years and three percent thereafter forever.

$($ii$)$ Estimated discounted rate is eight percent during the high growth period and five percent during the steady state.

Required:

Using the Free cash flow to the Firm model, estimate the value of Highway limited$.$

$(25$ marks$)$