You are an investment analyst at FI Investments tasked to value FBC firm a Southern Agricultural Conglomerate. The following financial information was recently released for FBC. The company’s 2018 and 2017 annual financial reports are contained in tables 1 and 2 below, along with important additional information: Table 1: FBC statement of financial position (R millions) 2018 2017 Cash and equivalents R149 R83 Accounts receivable 295 265 Inventory 275 285 Total current assets R719 R633 Total fixed assets 3 909 3 856 Accounts payable 228 220 Notes payable 0 0 Total current liabilities 228 220 Long term debt 1 800 1 650 Total liabilities and shareholders equity 3 909 3 856 Number of shares outstanding (millions) 100 100 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 R3 175 R3 075 EBIT 495 448 Interest expense 104 101 Net Income 235 208 Dividends per share R0.80 R0.80 Use the information given, to answer the following: Calculate the Free Cash Flow to the Firm (FCFF) for the year 2018. 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.
You are an investment analyst at FI Investments tasked to value FBC firm a Southern Agricultural Conglomerate. The following financial information was recently released for FBC. The company’s 2018 and 2017 annual financial reports are contained in tables 1 and 2 below, along with important additional information: Table 1: FBC statement of financial position (R millions) 2018 2017 Cash and equivalents R149 R83 Accounts receivable 295 265 Inventory 275 285 Total current assets R719 R633 Total fixed assets 3 909 3 856 Accounts payable 228 220 Notes payable 0 0 Total current liabilities 228 220 Long term debt 1 800 1 650 Total liabilities and shareholders equity 3 909 3 856 Number of shares outstanding (millions) 100 100 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 R3 175 R3 075 EBIT 495 448 Interest expense 104 101 Net Income 235 208 Dividends per share R0.80 R0.80 Use the information given, to answer the following: Calculate the Free Cash Flow to the Firm (FCFF) for the year 2018. 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.
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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Question
- You are an investment analyst at FI Investments tasked to value FBC firm a Southern Agricultural Conglomerate. The following financial information was recently released for FBC. The company’s 2018 and 2017 annual financial reports are contained in tables 1 and 2 below, along with important additional information:
Table 1: FBC
|
|
2018 |
2017 |
|
Cash and equivalents |
R149 |
R83 |
|
Accounts receivable |
295 |
265 |
|
Inventory |
275 |
285 |
|
Total current assets |
R719 |
R633 |
|
|
|
|
|
Total fixed assets |
3 909 |
3 856 |
|
|
|
|
|
Accounts payable |
228 |
220 |
|
Notes payable |
0 |
0 |
|
Total current liabilities |
228 |
220 |
|
|
|
|
|
Long term debt |
1 800 |
1 650 |
|
|
|
|
|
Total liabilities and shareholders equity |
3 909 |
3 856 |
|
Number of shares outstanding (millions) |
100 |
100 |
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 |
R3 175 |
R3 075 |
|
EBIT |
495 |
448 |
|
Interest expense |
104 |
101 |
|
Net Income |
235 |
208 |
|
Dividends per share |
R0.80 |
R0.80 |
Use the information given, to answer the following:
- Calculate the
Free Cash Flow to the Firm (FCFF) for the year 2018. - 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.
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