Ukukhanya Pty Ltd Ukukhanya is a light manaufacturer and wants to establish the value of the business. The following questions will guide you towards helping them with their valuation. As at beginning January 2005: a) Estimate Ukus appropriate cost of capital for computing the present value of the discounted cash flows, assuming a target D/Tc of 30% and a Mp of 6%. Hint: Use the longest term bond rate as the risk free rate Hint: Use the average Beta of the two industry coparative companies contained in the "Other finacial Data" tab b) Estimate the free cash flows for Uku over the next four years assuming 5% growth in Sales per annum, a GP margin of 20% and a sales and admin expense of R2,600. c) Estimate a residual (terminal) value at the end of 2009 assuming a free cash flow growth of 3%. d) Calculate the present value of the free cash flows (Including the Terminal Value) Hint: Assume the the cashflows are earned over the course of the year e) What would be the total value of Ukus equity?Ukukhanya (Pty) Ltd. Income Statements, 2002-2004 (in R thousands) Income Statements 2002 2003 2004 Sales 46,943 47,475 48,071 Cost of Goods Sold - 36,612 - 37,912 - 38,401 GP 10,331 9,563 9,670 Selling and Administrative Expense - 2,343 - 2,941 - 3,611 Depreciation - 3,210 - 3,413 - 3,214 Operating Income 4,778 3,209 2,845 Interest Expense - 604 - 620 - 601 Earnings before Taxes 4,174 2,589 2,244 Taxes (40%) - 1,650 - 1,036 - 897 Net Income 2,524 1,553 1,347 Earnings per Share R 49.48 R 31.06 R 26.94 Balance Sheets 2003 2004 Cash 3,201 3,114 Securities 3,111 3,321 Accounts Receivable 12,604 12,710 Inventory 14,720 15,000 Current Assets 33,636 34,145 Net Property, Plant & Equipment 16,076 12,822 Total Assets 49,712 46,967 2003 2004 Accounts Payable 13,600 14,173 Wages Payable 8,000 8,074 Accrued Taxes 1,100 842 Current Liabilities 22,700 23,089 Long-term Debt 9,200 5,900 Ordinary Shares (R100 par) 5,000 5,000 Retained Earnings 12,812 12,978 Total Liabilities & Owners Equity 49,712 46,967 Ukukhanya (Pty) Ltd. Projected Capital Expenditures and Total Depreciation, 2005-2008 (in R thousands)2005 2006 2007 2008 Capital Expenditures 4,300 5,600 4,200 2,000 Depreciation 1200* 1,500 1,600 1,600 * This figure represents the TOTAL expected depreciation for tax purposes for Uku. The change from previous years reflected an error in schedulesLight Manufacturing Industry Comparison Sales (in thousands) Earnings after Tax (in thousands) Shares (in thousands) Earnings per Share Stock Price Long-term Debt (in thousands) Beta African Glow 75,412 7,490 5,800 1.29 12.25 7,894 0.96 4EverLight 143,821 16,143 7,610 2.12 19.50 148,395 1.44 Current Financial Market Data Type of Bond Maturity Yield-to-Maturity as of Jan 2005 R150 January 2005 4.72% R194 January 2008 5.76% R153 January 2010 5.96%