Additional information: Depreciation (2018): R483. The firm spent R250m in profitable projects during the course of 2018 • WACC : 15% Cost of equity of the firm: 10% Tax rate : 40% Table 2: FBC statement of comprehensive income (R millions except for share data) 2018 2017 Total revenues EBIT R3 175 R3 075 495 448 Interest expense Net Income Dividends per share 104 101 235 208 R0.80 R0.80 Use the information given, to answer the following: a) Calculate the Free Cash Flow to the Firm (FCFF) for the .8a] b) You are told that the Free Cash Flow to Equity (FCFE) of the firm will continue to grow at a rate of 5% for the next 3 years, after which it will stabilize to a rate of 3%. Calculate the intrinsic value of each of FBC' shares. 9 (Use 2.d.p in your calculations & final answer for this question)
Additional information: Depreciation (2018): R483. The firm spent R250m in profitable projects during the course of 2018 • WACC : 15% Cost of equity of the firm: 10% Tax rate : 40% Table 2: FBC statement of comprehensive income (R millions except for share data) 2018 2017 Total revenues EBIT R3 175 R3 075 495 448 Interest expense Net Income Dividends per share 104 101 235 208 R0.80 R0.80 Use the information given, to answer the following: a) Calculate the Free Cash Flow to the Firm (FCFF) for the .8a] b) You are told that the Free Cash Flow to Equity (FCFE) of the firm will continue to grow at a rate of 5% for the next 3 years, after which it will stabilize to a rate of 3%. Calculate the intrinsic value of each of FBC' shares. 9 (Use 2.d.p in your calculations & final answer for this question)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
![Additional information:
Depreciation (2018): R483.
The firm spent R250m in profitable projects during the course of 2018
• WACC : 15%
Cost of equity of the firm: 10%
Tax rate : 40%
Table 2: FBC statement of comprehensive income
(R millions except for share data)
2018
2017
Total revenues
EBIT
R3 175
R3 075
495
448
Interest expense
Net Income
Dividends per share
104
101
235
208
R0.80
R0.80
Use the information given, to answer the following:
a) Calculate the Free Cash Flow to the Firm (FCFF) for the
.8a]
b) You are told that the Free Cash Flow to Equity (FCFE) of the firm will continue to grow at a
rate of 5% for the next 3 years, after which it will stabilize to a rate of 3%. Calculate the intrinsic
value of each of FBC' shares. 9 (Use 2.d.p in your calculations & final answer for this question)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F9be65b21-88b4-4eba-9be3-5584e0d8722b%2Fe4672e7d-61f5-4a82-9744-9dd573d16024%2Fuxoh6lu_processed.png&w=3840&q=75)
Transcribed Image Text:Additional information:
Depreciation (2018): R483.
The firm spent R250m in profitable projects during the course of 2018
• WACC : 15%
Cost of equity of the firm: 10%
Tax rate : 40%
Table 2: FBC statement of comprehensive income
(R millions except for share data)
2018
2017
Total revenues
EBIT
R3 175
R3 075
495
448
Interest expense
Net Income
Dividends per share
104
101
235
208
R0.80
R0.80
Use the information given, to answer the following:
a) Calculate the Free Cash Flow to the Firm (FCFF) for the
.8a]
b) You are told that the Free Cash Flow to Equity (FCFE) of the firm will continue to grow at a
rate of 5% for the next 3 years, after which it will stabilize to a rate of 3%. Calculate the intrinsic
value of each of FBC' shares. 9 (Use 2.d.p in your calculations & final answer for this question)
Expert Solution
Step 1: INTRODUCTION
Intrinsic value of a share is a very important factor in a share purchase decision. It is the value which a shareholder will get by buying the share. If intrinsic value of a firm exceeds the purchase price then it is a good buy.
Step 2: Part a
Cash flow to firm can be calculated as follows:
Step by step
Solved in 3 steps
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