ABC Limited is a manufacturing company located in Nairobi County. The company manufactures and sells various...

  

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ABC Limited is a manufacturing company located in Nairobi County. The company manufactures and sells various products. You have been tasked with the assignment of estimating the value of operations for the firm using discounted cash flow approach. You have been provided with the following information for the company. () Data for ABC limited for the most recent period ( Year 2019) Sh' Millions Revenues 30 Operating Earnings Before Interest and 10 Tax Fixed Capital Investment 5 Working Capital Investment Depreciation 3 (i) Corporate tax rate relevant for ABC limited is 30 %. The before tax cost of debt of ABC Itd. is 10 % (i) The average beta for ABC limited is 1.5 based on market value of debt and equity. (iv) Average return on market and risk free rate of return is 12 % and 5 % respectively. 2. (v) The average debt - equity ratio of ABC Limited based on market value of debt and equity is 0.25 (vi) The Free Cash Flow (FCF) of the company is expected to grow at annual rate of 5 % for ten years and 3 % each year thereafter into the foreseeable future. Required: (a) Compute Free cash flow to ABC limited for the most recent period ( Year 2019) (3 marks) (b) Compute after tax cost of debt (2 Marks) (c) Compute cost of equity using the Capital Asset Pricing Model (CAPM) (3 Marks) (d) Compute weighted average cost of Capital (8 Marks) (e) Compute the present value of the expected free cash flow (9 Marks) ABC Limited is a manufacturing company located in Nairobi County. The company manufactures and sells various products. You have been tasked with the assignment of estimating the value of operations for the firm using discounted cash flow approach. You have been provided with the following information for the company. () Data for ABC limited for the most recent period ( Year 2019) Sh' Millions Revenues 30 Operating Earnings Before Interest and 10 Tax Fixed Capital Investment 5 Working Capital Investment Depreciation 3 (i) Corporate tax rate relevant for ABC limited is 30 %. The before tax cost of debt of ABC Itd. is 10 % (i) The average beta for ABC limited is 1.5 based on market value of debt and equity. (iv) Average return on market and risk free rate of return is 12 % and 5 % respectively. 2. (v) The average debt - equity ratio of ABC Limited based on market value of debt and equity is 0.25 (vi) The Free Cash Flow (FCF) of the company is expected to grow at annual rate of 5 % for ten years and 3 % each year thereafter into the foreseeable future. Required: (a) Compute Free cash flow to ABC limited for the most recent period ( Year 2019) (3 marks) (b) Compute after tax cost of debt (2 Marks) (c) Compute cost of equity using the Capital Asset Pricing Model (CAPM) (3 Marks) (d) Compute weighted average cost of Capital (8 Marks) (e) Compute the present value of the expected free cash flow (9 Marks)

Answer rating: 100% (QA)

Given Revenue 30 million Operating earnings before interest and tax 9 million a Computation of free ... View the full answer