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You have been asked to estimate the value of a Canberra inc, a mature Australian...

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Accounting

You have been asked to estimate the value of a Canberra inc, a mature Australian Steel company for acquisition by a US steel company. The expected cash flows for next year have been estimated below and they are expected to grow 3% a year in perpetuity, in millions of Australian dollars:

Most recent year Next year
Net income $ 100.00 $ 103.00
- (Cap Ex - Depreciation) $ 40.00 $ 41.20
- Chg in non-cash WC $ 20.00 $ 20.60
+ New Debt issued $ 15.00 $ 15.45
Free Cash Flow to Equity $ 55.00 $ 56.65

The US company has a US dollar cost of equity of 9% and a US $ cost of capital of 8%. Australia can be viewed as a mature market. If the inflation rate is 4% in Australia and 2% in US, what value would you attach to these cash flows?

(Hint Currency & cash flow consistency)

a. $1,452 b. $944 c. $696 d. $1,940 e. $794

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