QUESTION3

The Financial statements of ABC Steel Fabrications are as shown below with the actual results for year 2020 and the projections for year 2021. Free cash Flow is expected to grow at a rate of six percent rate after 2021. The Weighted Average Cost of Capital for the company is twelve percent.

INCOME STATEMENT

	Actual (2020)	Projected (2021)
	Sh' Million	Sh' Million
Sales	500	530
Costs (except Depreciation)	360	381.6
Depreciation	37.5	39.375
Total Operating Costs	397.5	420.975
Earnings Before interest and tax	102.5	109.025
Less interest	13.9	14.65
Earning before tax	88.6	94.375
Taxes @30%	26.58	28.3125
Net Income before preferred dividends	62.02	66.0625
Preferred dividends	6	6
	56.02	60.0625
Common dividends	40.8	29.7
Addition to retained Earnings	15.22	30.3625
Number of shares	10	10
Earnings per share	5.602	6.00625
Dividend per share	4.08	2.97

BALANCE SHEET

	Actual (2020)	Projected (2021)
	Sh' Million	Sh' Million
ASSETS
Cash	5.3	5.6
marketable Securities	49.9	51.9
Accounts Receivable	53	56.2
Inventories	106	112.4
Total Current Assets	214.2	226.1
Net Plant and Equipment	375	393.75
Total Assets	589.2	619.85
LIABILITIES AND EQUITY
Accounts payable	9.6	11.2
Notes payable	69.9	74.1
Accruals	27.5	28.1
Total Current Liabilities	107	113.4
Long-Term bonds	140.8	146.55
Preferred Stock	35	35
Common stock	160	160
Retained Earnings	146.4	164.9
Common equity	306.4	324.9
Total Liabilities and Equity	589.2	619.85

Required:

(a) Estimate Free Cash Flow as at end of 2021

(b) Estimate the value of Operations as at the end of year 2020

(c) Estimate the value of the company and its price per share as at 31st December, 2020