Table 1.0 Income 2020 2021 2022 2023 Statement Ghc Ghc Ghc Ghc Revenue 3,000,000.00 3,300,000.00 3,600,000.00 4,000,000.00 Cost of Goods 1,800,000.00 1,900,000.00 2,000,000.00 2,200.000.00 Sold Depreciation 300,000.00 360,000.00 390,000.00 420,000.00 EBIT 900,000.00 1,040,000.00 1,210,000.00 1,380,000.00 Interest 300,000.00 300,000.00 300,000.00 300.000.00 EBT 600,000.00 740,000.00 910,000.00 1,080,000.00 Taxes 180,000.00 222,000.00 273,000.00 324,000.00 Net Income 420,000.00 518,000.00 637,000.00 756,000.00 Table 2.0 2020 2021 2022 2023 Capital Exp. Changes in Net 200,000.00 220,000.00 328,000.00 200,000.00 350,000.00 277,000.00 430,000.00 326.000.00 Working Capital

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
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Green Leaf Limited is an IT company operating in Ghana. The main business of Green Leaf is 
assembling of personal computer from components that are imported from India and China. 
Recently, the company has expanded its business activities to include the assembling of 
smartphones. Its shares are actively traded on the Ghana Stock Exchange. The beta of Green 
Leaf Company Limited’s equity is 20% higher than the beta of the whole market. The company’s 
current debt-to-equity ratio is 50%. Green Leaf’s management has projected income statements 
for the next four fiscal years. These projections are given in the table below. In addition, Green 
Leaf’s management plans to have capital expenditures and changes of net working capital in the 
coming four fiscal years as stated in the second table. Green Leaf’s outstanding debt is risk-free. 
Risk free rate of return is 3% p.a. and the stock market is expected to earn a 12% return p.a. 
corporate tax is 30%. 

The management assumes that Green Leaf’s business will increase only at a 2% compound 
growth rate after 2023 as the extraordinary growth in the market for smartphones is not expected 
to be sustainable after 2023.

Determine Green Leaf’s Expected Free Cash Flow (FCFF) in the fiscal years 2020
to 2023.FCFF = EBIT – Taxes + Depreciation – ΔNWC – CE and Determine Green Leaf Equity Cost of Capital under the new proposed capital structure

Table 1.0
Income
2020
2021
2022
2023
Statement
Ghc
Ghc
Ghc
Ghc
Revenue
3,000,000.00
3,300,000.00
3,600,000.00
4,000,000.00
Cost of Goods
1,800,000.00
1,900,000.00
2,000,000.00
2,200.000.00
Sold
Depreciation
300,000.00
360,000.00
390,000.00
420,000.00
EBIT
900,000.00
1,040,000.00
1,210,000.00
1,380,000.00
Interest
300,000.00
300,000.00
300,000.00
300.000.00
EBT
600,000.00
740,000.00
910,000.00
1,080,000.00
Taxes
180,000.00
222,000.00
273,000.00
324,000.00
Net Income
420,000.00
518,000.00
637,000.00
756,000.00
Table 2.0
2020
2021
2022
2023
Capital Exp.
Changes in Net
200,000.00
220,000.00
328,000.00
200,000.00
350,000.00
277,000.00
430,000.00
326.000.00
Working Capital
Transcribed Image Text:Table 1.0 Income 2020 2021 2022 2023 Statement Ghc Ghc Ghc Ghc Revenue 3,000,000.00 3,300,000.00 3,600,000.00 4,000,000.00 Cost of Goods 1,800,000.00 1,900,000.00 2,000,000.00 2,200.000.00 Sold Depreciation 300,000.00 360,000.00 390,000.00 420,000.00 EBIT 900,000.00 1,040,000.00 1,210,000.00 1,380,000.00 Interest 300,000.00 300,000.00 300,000.00 300.000.00 EBT 600,000.00 740,000.00 910,000.00 1,080,000.00 Taxes 180,000.00 222,000.00 273,000.00 324,000.00 Net Income 420,000.00 518,000.00 637,000.00 756,000.00 Table 2.0 2020 2021 2022 2023 Capital Exp. Changes in Net 200,000.00 220,000.00 328,000.00 200,000.00 350,000.00 277,000.00 430,000.00 326.000.00 Working Capital
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