Question
You have reformulated the Imber Aedax Companys most recent financial statements and extracted the following information: Year ended 31 Dec 2019 $ million Sales 35,200
You have reformulated the Imber Aedax Companys most recent financial statements and extracted the following information:
Year ended 31 Dec 2019 | $ million |
Sales | 35,200 |
Interest expense minus interest income | 291 |
Earnings before tax | 13,168 |
Tax expense | 2,384 |
Comprehensive Income (CE) | 11,809 |
As at 31 Dec 2019 | $ million |
Net operating working capital (OWC) | 936 |
Net non-current operating assets (NNCOA) | 42,287 |
Net financial obligations (NFO) | 11,906 |
a) Calculate NOA (net operating assets) and CSE (common shareholders equity) at the end of 2019.
b) Using the 2019 effective tax rate, calculate NFE (net financial expense) and OI (operating income or NOPAT) for the year 2019.
2020 | 2021 | 2022 | thereafter | |
Sales growth | 10% | 7% | 4% | 3% |
OI / sales | 30% | 25% | 20% | 18% |
Previous year OWC / this year's sales | 2.2% | 2% | 2% | |
Previous year NNCOA / this year's sales | 105% | 100% | 98% | |
NFO / NOA | 27.5% | 27.5% | 27.5% | 27.5% |
c) Predict sales and OI for the years 2020 to 2022. Predict NOA, NFO and CSE for the years 2020 to 2022.
d) Assuming that the 2019 tax rate continues to apply in future and that the cost of debt before tax shield benefit is 2%, find the after-tax cost of debt. Assuming that the cost of equity is 4.9% and using information given in the forecast table above, calculate the WACC (weighted average cost of capital). Round it to the nearest one tenth of a percent. Assuming that NFE equals previous year NFO times the after-tax cost of debt, calculate NFE and CE for the years 2020 to 2022.
e) Calculate predicted AE (abnormal earnings), AOI (abnormal operating income or abnormal NOPAT) and FCF (free cash flow) for the years 2020 to 2022.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started