Part b.

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
Interest rate on long-term debt (%)	4.0	5.0	5.5	6.0	6.5
EBIT ($M)		45,000	47,000	45,000	50,000
Depreciation ($M)		38,000	36,000	39,000	41,000
Cap Spending ($M)		36,000	35,000	37,000	40,000
Cost of equity		0.10	0.12	0.10	0.13
WACC		0.13	0.14	0.15	0.16
Number of equity shares (Million)	4,000
Terminal growth rate	0.06
Tax rate	0.30

The long-term debt in 2020 was $58000. The company plans an annual compound growth of 5% for the long-term debt. The working capital of the company in 2020 was $15,000. The company plans an annual compound growth of 6% for the working capital.

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. 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 method

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

Note: For parts i and ii prepare a table showing how free cash flow to firm and free cash flow to equity are calculated. Follow the example in the lecture notes for session 7.

Part b. 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 Interest rate on long-term debt (%) 4.0 5.0 5.5 6.0 6.5 EBIT (SM) 45,000 47,000 45,000 50,000 Depreciation (SM) 38,000 36,000 39,000 41,000 Cap Spending ($M) 36,000 35,000 37,000 40,000 Cost of equity 0.10 0.12 0.10 0.13 WACC 0.13 0.14 0.15 0.16 Number of equity shares (Million) 4,000 Terminal growth rate 0.06 2