Tad QUESTION TWO most recent period and five year projections. Figures in million Kenya shilings. The following is a presentation of re-organized financial statements of ABC Limited for the kopur Z PROJECTED 1 2 3 4 5 6 Non-Current Assets (NET) Current Assets Current liabilities Revenues Earnings Before Interest & Tax Depreciation and ammonization 0 400 50 40 600 100 50 1 480 60 48 720 120 60 72 576 72 57.6 864 144 72 3 5 691.2 829.44 995.328 86.4 103.68 124.42 69.12 82.94 99.53 1036.8 1244.16 1492.99 172.8 207.36 248.83 86.4 103.68 124.42 Additional information Applicable tax rate is 30%. It is expected that after year five (projection), all items except non-current assets and, depreciation and amortization will grow at an annual rate of 5% each year indefinitely. Investment on capital projects and non-cash charges will off-set each other. (in) Weighted average cost of capital during high growth stage and stable growth stages has been estimated as 12% and 6% respectively. Required (a) Compute growth rate for the high-growth stage. (5 marks) (b) Compute free cash flow for projected years 1, 2, 3, 4 and 5. (10 marks) Compute the value of ABC Limited given the above information. Using free cash flow to the firm's model. (10 marks) (d) Compute the terminal value of ABC Limited. (5 marks) [Total: 30 marks] Tad QUESTION TWO most recent period and five year projections. Figures in million Kenya shilings. The following is a presentation of re-organized financial statements of ABC Limited for the kopur Z PROJECTED 1 2 3 4 5 6 Non-Current Assets (NET) Current Assets Current liabilities Revenues Earnings Before Interest & Tax Depreciation and ammonization 0 400 50 40 600 100 50 1 480 60 48 720 120 60 72 576 72 57.6 864 144 72 3 5 691.2 829.44 995.328 86.4 103.68 124.42 69.12 82.94 99.53 1036.8 1244.16 1492.99 172.8 207.36 248.83 86.4 103.68 124.42 Additional information Applicable tax rate is 30%. It is expected that after year five (projection), all items except non-current assets and, depreciation and amortization will grow at an annual rate of 5% each year indefinitely. Investment on capital projects and non-cash charges will off-set each other. (in) Weighted average cost of capital during high growth stage and stable growth stages has been estimated as 12% and 6% respectively. Required (a) Compute growth rate for the high-growth stage. (5 marks) (b) Compute free cash flow for projected years 1, 2, 3, 4 and 5. (10 marks) Compute the value of ABC Limited given the above information. Using free cash flow to the firm's model. (10 marks) (d) Compute the terminal value of ABC Limited. (5 marks) [Total: 30 marks]
