The following are extracts (re-organized) of financial statements of Nyayo Limited, a company in the manufacturing sector. The extracts are for the most recent period NYAYO LIMITED STATEMENT OF INCOME FOR THE PERIOD ENDED 31ST DECEMBER, 2019 Revenues Gain on disposal Less: Operating Expenses Other Expenses: Depreciation Amortization Interest Expenses Pre-Tax Earnings Tax Net Income Appropriations Net Income Dividends Retained Earnings ASSETS Property, Plant and Equipment CURRENT ASSETS Cash and Marketable Securities Inventory Accounts Receivables Less: CURRENT LIABILITIES Accruals Trade Payables Short-Term Loans Notes Payable Working Capital NET ASSETS FINANCED BY: 10% Debt Sh' Millions 500.00 50.00 Ordinary Share Capital Retained Earnings TOTAL FINANCING NYAYO LIMITED STATEMENT OF FINANCIAL POSITION FOR THE PERIOD ENDED 31ST DECEMBER, 2019 Sh' Millions 30.00 40.00 60.00 25.00 5.00 20.00 10.00 40.00 20.00 5.00 Sh' Millions 130.00 Sh' Millions 75.00 300.00 155.00 550.00 100.00 450.00 50.00 400.00 120.00 280.00 280.00 224.00 56.00 Sh' Millions 500.00 55.00 555.00 455.00 555.00 100.00 Additional information (i) Revenues are expected to grow at an annual rate of 10% each 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) Nyayo 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 Average Return on Market Levered Beta of Nyayo Limited 5 12 1.5 Required: (a) Based on the information provided, project the income statement and financial position for year 2020. Based on the projections, compute for the year 2020; (i) Investment in working capital (ii) Investment in fixed capital (iii) Operating EBIT (iv) Non-Cash Charges (b) Compute free cash flow to Nyayo limited for years 2020 (c) Estimate (i) After tax cost of debt (ii) Cost of equity (iii) Weighted average cost of capital (d) Compute the terminal value (e) Using DCF approach, estimate the value of operations of the company