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Question: you are a senior financial analyst of a firm based...

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You are a senior financial analyst of a firm based in Melbourne. 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

2019

2020

2021

2022

2023

Long-term Debt ($M)

45000

46,000

47,333

48,667

50,000

Profits ($M, after tax)

10,000

16,000

18,000

21,000

24,000

Interest ($M, after tax)

878

900

950

950

975

Working Cap ($M)

8,000

11,000

14,000

20,000

23,000

Depreciation ($M)

25,000

26,000

27,000

28,000

29,000

Cap Spending ($M)

 

24,150

27,767

31,383

35,000

Cost of equity

 

0.112

0.110

0.113

0.115

WACC

 

0.100

0.110

0.110

0.120

Number of equity shares (Million)

2,000

       

Terminal growth rate

0.06

       

1

Using the information you have collected above, perform calculations to explain to interns as to how the following are calculated:

  1. Free cash flow to firm

  2. Free cash to equity

  3. Value of the firm according to the free cash flow to firm method

  4. Value of the firm according to the free cash flow to equity method

  5. Estimated price of an equity share according to the free cash flow to firm method and the free cash flow to equity method

Note: Round off the numbers to the nearest integer.

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