Question $1(15$ Marks$)$

AB Ltd has net cash flows from operating activities of R$200000.$ The organisation plans

to use R$35000$ every year to buy new equipment for the factory. In addition, the

dividends to be paid to AB Ltd$.$s shareholders total R$75000.$

AB Ltd expects its cash flows to grow every year by $5\%$ for the next three years, after

which they will only grow by $2\%($i$.$e$.,$ from year $4$ onwards$).$ AB Ltd has a weighted

average cost of capital $($WACC$)$ of $10\%$ and $50000$ shares in issue.

$$ Calculate the free cash flow in year $0,$ the value of the organisation using the

FCF model and the free cashflow value per share.

b$)$ Use the free cashflow model to calculate the value of the b$)$ Use the free cashflow model to calculate the value of the company. $(10)$