These are the all information given for this question in the past paper.
Following information is given to prepare projected cash flow statements for Best Milk Plc (BM), which is being considered as a target firm by Crown Yoghurts Plc (CC), a large conglomerate. After the acquisition process it is anticipated to operate BM as one of the subsidiaries of CC Plc. Suppose that this merger analysis taking place at the end of the year 2017. Projections are done by CC Plc. for next 5 years commencing rom 2017. In 2017 net sales value is reported as Rs. 140 million. Net sales will increase year on year by 20% and cost of goods sold is 65% of the net sales in each year for next four years. Selling and administrative expenses for projected five years are Rs. 10.0, 12.0, 13.0, 15.0 and 16.0 in millions respectively. Depreciation values are Rs. 8.0, 8.0, 8.0, 9,0 and 9.0 million respectively. Interest expenses are 8.0, 9.0, 10.0, 11.0 and 11.0 million. Retentions forecasted for Bm's future growth are assumed to be as Rs. 4.0, 4.0, 7.0, 9.0 and 12 million. Further, both BM and CC have a 40 percent tax rate. BM's available cash flows are expected to grow at a constant 10 percent rate after 2021. Risk free rate in the economy is 7% and return on market portfolio is 14% and market risk value applied to this merger process is estimated to be as 1.2. You are required to calculate; (i) Forecasted figures of net sales, cost of goods sold, EBIT, EBT, tax to be paid, net income and net cash flows for projected period of 5 years. (07 Marks) (ii) Horizon value (terminal value) of MB Plc and thee cash flow amounts available to acquirer's shareholders (Estimate the post-merger cost of equity by assuming that net cash flows belong to the CC's shareholders (discount rate) round off the value to use for calculations. (05 Marks) Value of the target firm (Approximate value of the acquirer (CC) to determine bid price - use DCF approach to value the target firm). (04 Marks) Following information is given to prepare projected cash flow statements for Best Milk Plc (BM), which is being considered as a target firm by Crown Yoghurts Plc (CC), a large conglomerate. After the acquisition process it is anticipated to operate BM as one of the subsidiaries of CC Plc. Suppose that this merger analysis taking place at the end of the year 2017. Projections are done by CC Plc. for next 5 years commencing rom 2017. In 2017 net sales value is reported as Rs. 140 million. Net sales will increase year on year by 20% and cost of goods sold is 65% of the net sales in each year for next four years. Selling and administrative expenses for projected five years are Rs. 10.0, 12.0, 13.0, 15.0 and 16.0 in millions respectively. Depreciation values are Rs. 8.0, 8.0, 8.0, 9,0 and 9.0 million respectively. Interest expenses are 8.0, 9.0, 10.0, 11.0 and 11.0 million. Retentions forecasted for Bm's future growth are assumed to be as Rs. 4.0, 4.0, 7.0, 9.0 and 12 million. Further, both BM and CC have a 40 percent tax rate. BM's available cash flows are expected to grow at a constant 10 percent rate after 2021. Risk free rate in the economy is 7% and return on market portfolio is 14% and market risk value applied to this merger process is estimated to be as 1.2. You are required to calculate; (i) Forecasted figures of net sales, cost of goods sold, EBIT, EBT, tax to be paid, net income and net cash flows for projected period of 5 years. (07 Marks) (ii) Horizon value (terminal value) of MB Plc and thee cash flow amounts available to acquirer's shareholders (Estimate the post-merger cost of equity by assuming that net cash flows belong to the CC's shareholders (discount rate) round off the value to use for calculations. (05 Marks) Value of the target firm (Approximate value of the acquirer (CC) to determine bid price - use DCF approach to value the target firm). (04 Marks)
