QUESTION:

XYZ is a manufacturing firm based in Nairobi, Kenya.You have been tasked with the estinmation of the value of its operations .The following data has been provided ( Data for the most recent period ,time =0)

i) fixed capital investment and depreciation stood at Sh.2,000,000 and Sh.1,000,000 respectively.

ii)Earnings before interest and tax is 20%of Revenues which stood at Sh.20,000,000

iii)Book value of debt and equity is Sh.1,000,000 and Sh.2,000,000 respectively

iv)Effective tax rate is 20%

v)Pre-Tax Interest rate is 10%

vi) Working capital investment is 1% of Revenues.

Additional information:

Revenues, Earnings before interest and Tax , Non-Cash Charges , fixed capital investment and investment in working Capital are expected to grow at an annual rate of 5% each year for 20 years and 2% thereafter forever.Cost of equity based on C.A.P.M is 13%.

Required:

Compute the value of operations of XYZ Limited