The following are extracts (re-organized) of financial statements of ABC Limited, a company in the manufacturing sector. The extracts are for the most recent period

ABC LIMITED

STATEMENT OF INCOME

FOR THE PERIOD ENDED 31ST DECEMBER, 2020

	Sh' Millions	Sh' Millions
Revenues	500.00
Gain on disposal	50.00	550.00
Less: Operating Expenses		100.00
		450.00
Other Expenses:
Depreciation	25.00
Amortization	5.00
Interest Expenses	20.00	50.00
Pre-Tax Earnings		400.00
Tax		120.00
Net Income		280.00
Appropriations
Net Income		280.00
Dividends		224.00
Retained Earnings		56.00

ABC LIMITED

STATEMENT OF FINANCIAL POSITION

FOR THE PERIOD ENDED 31ST DECEMBER, 2020

	Sh' Millions	Sh' Millions	Sh' Millions
ASSETS
Property, Plant and Equipment			500.00
CURRENT ASSETS
Cash and Marketable Securities	30.00
Inventory	40.00
Accounts Receivables	60.00	130.00
Less: CURRENT LIABILITIES
Accruals	10.00
Trade Payable	40.00
Short-Term Loans	20.00
Notes Payable	5.00	75.00
Working Capital			55.00
NET ASSETS			555.00
FINANCED BY:
10% Debt			100.00
Ordinary Share Capital		300.00
Retained Earnings		155.00	455.00
TOTAL FINANCING			555.00

Additional information

(i) Revenues are expected to grow at an annual rate of 10% each year for five years and 5% thereafter forever

(ii) Current assets and current liabilities are expected to grow as revenues

(iii) Property, plant and equipment expected to grow as revenues and to off-set each other in the steady state period

(iv) Income statement items are expected to grow as revenues except for depreciation which has a direct proportional relationship with Property, plant and equipment

(v) Retained earnings depends on the dividend policy of the company

(vi) ABC Limited has settled on a debt-Equity ratio of 30%. At this level of debt-Equity ratio, pre-tax cost of debt is expected to be 10%

(vii) Based on historical data the following estimates have been provide

Risk free rate of return	5
Average Return on Market	12
Levered Beta of ABC Limited	1.5

Required:

(a) Project the income statement and statement of financial position for year 2021. Based on the projections, compute for the year 2021;

(i) Investment in working capital

(ii) Investment in fixed capital

(iii) Operating Earnings Before Interest and Tax

(iv) Non-Cash Charges

(b) Compute Free Cash Flow (FCF) to ABC Limited for years 2021

(c) Estimate

(i) After tax cost of debt

(ii) Cost of equity using Capital Asset Pricing Model (CAPM)

(iii) Weighted average cost of capital

(d) Compute the terminal value

(e) Using DCF approach, estimate the value of operations of the company