Section 2 (25 Marks) - The information below relates to questions 1-3. Complete the calculations requested, show your working, and answer the questions based on the calculations made.

AFC Ltd
Sales growth	10%
Current assets/Sales	15%
Current liabilities/Sales	8%
Net fixed assets/Sales	77%
Costs of goods sold/Sales	70%
Depreciation rate	10%
Interest rate on debt	5%
Interest paid on cash and marketable securities	4%
Tax rate	30%
Dividend payout ratio	40%
Year	0	1	2	3	4	5
Income statement
Sales	1000	1100	1210	1331	1464	1611
Costs of goods sold	-700	-770	-847	-932	-1025	-1127
EBITDA	300	330	363	399	439	483
Interest payments on debt	-16	-16	-16	-16	-16	-16
Interest earned on cash and marketable securities	3	3	3	3	3	3
Depreciation	-100	-107	-125	-146	-170	-198
Profit before tax	187	210	225	240	256	273
Taxes	-56	-63	-68	-72	-77	-82
Profit after tax	131	147	158	168	179	191
Dividends	-52	-59	-63	-67	-72	-76
Retained earnings	79	88	95	101	108	114
Balance sheet
Cash and marketable securities	80	84	86	86	82	73
Current assets	150	165	182	200	220	242
Fixed assets
At cost	1070	1254	1464	1704	1977	2287
Depreciation	-300	-407	-532	-679	-849	-1047
Net fixed assets	770	847	932	1025	1127	1240
Total assets	1000	1096	1200	1310	1429	1555
Current liabilities	80	88	97	106	117	129
Debt	320	320	320	320	320	320
Stock	450	450	450	450	450	450
Accumulated retained earnings	150	238	333	434	541	656
Total liabilities and equity	1000	1096	1200	1310	1429	1555
Year	0	1	2	3	4	5
Free cash flow calculation
Profit after tax		147	158	168	179	191
Add back depreciation		107	125	146	170	198
Subtract increase in current assets		-15	-17	-18	-20	-22
Add back increase in current liabilities		8	9	10	11	12
Subtract increase in fixed assets at cost		-184	-210	-240	-273	-310
Add back after-tax interest on debt		11	11	11	11	11
Subtract after-tax interest on cash and mkt. securities		-2	-2	-2	-2	-2
Free cash flow		72	74	75	76	77
Valuing the firm
Weighted average cost of capital	12%
Long-term free cash flow growth rate	5%
Number of Shares	1000

Q1. (9 Marks)

Using the information supplied calculate:

1. Enterprise Value
2. Equity Value
3. Price per share

If the current share price is $0.55 per share what recommendation would you make to an investor who was interested in purchasing this stock?

Q2. (8 Marks)

Given the following information about potential values for the long term growth rate:

Long Term Growth Possibilities	Rate	Probability
Best	5%	0.2
Likley	3.50%	0.5
Worst	2%	0.3

Revise your estimate of the price per share.

How would you explain the difference in the price estimates to an investor?

Q3. (8 Marks)

The P/E multiples for three comparable companies are given below:

Comparables	A	B	C
P/E	7.14	5.73	7.91

Use these multiples and the information from question one to estimate the share price.

Explain the differences in the estimates of share price that you have made in this section?