You are a senior financial analyst of a firm based in Sydney. You have been assigned with the task of training interns who recently joined your firm on how to use the free cas low model to estimate the value of a company. You have collected data on the following data: Year 2020 2021 2022 2023 2024 Long-term Debt (SM) 56000 57,000 57,000 58,000 60,000 Profits (SM, after tax) 22,000 28,000 26,000 32,000 35,000 Interest (SM, after tax) 1,900 1,950 2,050 2,150 2,275 Working Cap (SM) 20,000 19,000 22,000 30,000 28.000 Depreciation (SM) 36,000 37,000 38,000 38,000 40.000 Cap Spending (SM) 35,150 37,000 41,000 45,000 Cost of equity 0.10 0.11 0.09 0.11 WACC 0.12 0.13 0.13 0.12 Number of equity shares (Million) 3,000 Terminal growth rate 0.06 Using the information you have collected above, perform calculations to explain to interns as to how the following are calculated: Free cash to equity i. iii. method Free cash flow to firm ii. Value of the firm according to the free cash flow to firm method iv. Value of the firm according to the free cash flow to equity V. Estimated price of an equity share according to the free cash flow to firm method and the free cash flow to equity method
You are a senior financial analyst of a firm based in Sydney. You have been assigned with the task of training interns who recently joined your firm on how to use the free cas low model to estimate the value of a company. You have collected data on the following data: Year 2020 2021 2022 2023 2024 Long-term Debt (SM) 56000 57,000 57,000 58,000 60,000 Profits (SM, after tax) 22,000 28,000 26,000 32,000 35,000 Interest (SM, after tax) 1,900 1,950 2,050 2,150 2,275 Working Cap (SM) 20,000 19,000 22,000 30,000 28.000 Depreciation (SM) 36,000 37,000 38,000 38,000 40.000 Cap Spending (SM) 35,150 37,000 41,000 45,000 Cost of equity 0.10 0.11 0.09 0.11 WACC 0.12 0.13 0.13 0.12 Number of equity shares (Million) 3,000 Terminal growth rate 0.06 Using the information you have collected above, perform calculations to explain to interns as to how the following are calculated: Free cash to equity i. iii. method Free cash flow to firm ii. Value of the firm according to the free cash flow to firm method iv. Value of the firm according to the free cash flow to equity V. Estimated price of an equity share according to the free cash flow to firm method and the free cash flow to equity method
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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Transcribed Image Text:You are a senior financial analyst of a firm based in Sydney. You have been assigned with the task of training interns who recently joined your firm on how to use the free cash
flow model to estimate the value of a company. You have collected data on the following data:
Year
2020
2021
2022
2023
2024
Long-term Debt ($M)
56000
57,000
57,000
58,000
60,000
Profits (SM, after tax)
22,000
28,000
26,000
32,000
35,000
Interest ($M, after tax)
1,900
1,950
2,050
2,150
2,275
Working Cap (SM)
20,000
19,000
22,000
30,000
28,000
Depreciation (SM)
36,000
37,000
38,000
38,000
40,000
Cap Spending ($M)
35,150
37,000
41,000
45,000
Cost of equity
0.10
0.11
0.09
0.11
WACC
0.12
0.13
0.13
0.12
Number of equity shares (Million)
3,000
Terminal growth rate
0.06
Using the information you have collected above, perform calculations to explain to interns as to how the following are calculated:
i.
Free cash flow to firm ii.
Free cash to equity
iii.
method
Value of the firm according to the free cash flow to firm method iv.
Value of the firm according to the free cash flow to equity
Estimated price of an equity share according to the free cash flow to firm method and the free cash flow to equity method
V.
Note: For parts i and ii prepare a table showing how free cash flow to firm and free cash flow to equity are calculated.
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