Your company has requested you to estimate its value under alternative assumptions about

the company$$s performance.

Required:

$3\mathrm{.}1.$ Using the discounted cash flow $($DCF$)$ approach to valuation, provide an estimate of

your company$$s value. $(20)$

You must consider the following assumptions in your estimation:

$$ Use the financial information of the company of your choice to estimate the current

sales. The sales are expected to grow at a rate of $5$ percent per year for the next

four years, and then at $3$ percent per year into perpetuity.

$$ The pre$-$tax operating margin ratio to sales will be $15\%$ for the next four years and

then stabilise at $20\%$ henceforth.

$$ The working capital requirement to sales ratio from year $1$ onwards will remain at

$18\%$ into perpertuity.

$$ The company has R$500$ million of outstanding debt. It can borrow at $6\%.$

$$ The company$$s income tax rate is $27\%.$

$$ Its beta is $1\mathrm{.}05.$ The risk$-$free rate and the market risk premium are $5\%.$

$$ The debt$-$to$-$total$-$capital ratio of the company, at market value, is $50\%.$

In your valuation, you are expected to make additional assumptions relevant to your company

or industry where such information is not provided above. $3\mathrm{.}2.$ Using your finding in $3\mathrm{.}1$ above together with the data provided, determine the

company$$s ordinary share value. $(2)$

$3\mathrm{.}3.$ Based on the number of shares the company plans to issue, determine the value of

each share. $(2)$

$3\mathrm{.}4.$ Assess if the value per share is acceptable to the market. $(3)$

$3\mathrm{.}5.$ The sustainability of the performance of your company for next four years is dependent

on how business and financial risks are managed. Evaluate the business and financial

risks for your company.