TwoBoxes Thanks Company (TBT) is engaged in manufacturing and selling surgical masks. Wilson, a senior research analyst of XBY Investment Bank, plans to use free cash flow model to estimate the justified share price. He prepares financial statements forecast shortly after TBT announced the annual result in 2019. The latest and forecasted of financial statements are shown as below (all in $ mil.): TBT Company Income Statement 2019 5,589 3,568 2020E 6,986 4,192 Total revenues Operating costs and expenses Earnings before interest, taxes, depreciation and amortization Depreciation and amortization Operating profit Interest expense Profit before taxes Tax (40%) Profit for the year 2,021 383 1,638 138 1,500 600 900 2,794 400 2,394 294 2,100 840 1,260 400 450 Dividend *E= Estimated TBT Company Consolidated Statement of Financial Positions 2019 2020E Cash 850 950 Accounts Receivables 1,456 1,598 Non-current Assets 1,358 1,520 Total Assets 3,664 4,068 Total Liabilities Total Shareholders' Equity 1,441 2,223 3,664 1,535 2,533 4,068 *E = Estimated . Additional Information about the Company and the market: Equity beta: 1.2 No. of common shares outstanding: 500 million Risk-free rate: 2% Expected market return: 12% Constant growth rate of free cash flow: 3% Estimated capital spending in 2020: $562 mil. Estimated change in net working capital in 2020: $148 mil. . . (a) Calculate the following figures: (i) free cash flow in 2020 (3 marks) (ii) the appropriate discount rate based on financial statements in 2020 (4 marks) (iii) the justified share price of the Company (4 marks) (b) Calculate the justified share price of the Company by P/B ratio if industry P/B ratio is 4.2. (2 marks) - End TwoBoxes Thanks Company (TBT) is engaged in manufacturing and selling surgical masks. Wilson, a senior research analyst of XBY Investment Bank, plans to use free cash flow model to estimate the justified share price. He prepares financial statements forecast shortly after TBT announced the annual result in 2019. The latest and forecasted of financial statements are shown as below (all in $ mil.): TBT Company Income Statement 2019 5,589 3,568 2020E 6,986 4,192 Total revenues Operating costs and expenses Earnings before interest, taxes, depreciation and amortization Depreciation and amortization Operating profit Interest expense Profit before taxes Tax (40%) Profit for the year 2,021 383 1,638 138 1,500 600 900 2,794 400 2,394 294 2,100 840 1,260 400 450 Dividend *E= Estimated TBT Company Consolidated Statement of Financial Positions 2019 2020E Cash 850 950 Accounts Receivables 1,456 1,598 Non-current Assets 1,358 1,520 Total Assets 3,664 4,068 Total Liabilities Total Shareholders' Equity 1,441 2,223 3,664 1,535 2,533 4,068 *E = Estimated . Additional Information about the Company and the market: Equity beta: 1.2 No. of common shares outstanding: 500 million Risk-free rate: 2% Expected market return: 12% Constant growth rate of free cash flow: 3% Estimated capital spending in 2020: $562 mil. Estimated change in net working capital in 2020: $148 mil. . . (a) Calculate the following figures: (i) free cash flow in 2020 (3 marks) (ii) the appropriate discount rate based on financial statements in 2020 (4 marks) (iii) the justified share price of the Company (4 marks) (b) Calculate the justified share price of the Company by P/B ratio if industry P/B ratio is 4.2. (2 marks) - End
