The following is a four- year forecasted estimate for ABC limited. YEAR Free cash flow (Sh’ Millions) 2019 30 2020 76 2021 92 2022 112 Required Estimate the...

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Finance

The following is a four- year forecasted estimate for ABClimited.
YEAR
Free cash flow (Sh’ Millions)
2019
30
2020
76
2021
92
2022
112
Required
Estimate the fair market value of ABC limited at the end of2018. Assume that after 2022 earnings before interest and tax willremain constant at Sh. 200 million, depreciation will equal capitalexpenditure in each year and working capital will not change. Theweighted average cost of capital for the company is 11% and its taxrate is 30%.
Estimate the fair market value per share of the company’sequity at the end of 2018 if the company has 40 million sharesoutstanding and the market value of interest-bearing liabilities onthe valuation date equals Sh. 300 million. (10Marks)

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3.9 Ratings (460 Votes)

First we calculate free cash flow to firm FCFF for 2023 and beyond FCFF earnings before interest and tax or EBIT1tax rate Depreciation change in working capital capital expenditure Depreciation and capital expenditure are same so See Answer

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YEAR	Free cash flow (Sh’ Millions)
2019	30
2020	76
2021	92
2022	112