Several companies have approached Axer to acquire it. The CEO would like to prepare himself for discussions and has asked you to do up a valuation of the company using the discounted cash flow approach with cash flows from the most recent financial statements as shown below:
 

Profit & Loss Account for year ended 31 March 2022
Net Sales	20,000
Cost of goods sold	-12,000
Gross Profit	8,000
Depreciation	-1,200
Selling Expenses	-1,500
Administrative Expenses	-1,200
EBIT	4,100
Interest Expense	-1,200
EBT	2,900
Tax @ 17%	-493
Net Profit after tax	2,407
Dividend Paid	2,357

Balance Sheet @ 31 March	2021	2022
Cash	1,200	1,600
Receivables	2,400	2,200
Inventory	3,500	3,300
Other Current Assets	500	800
Total Current Assets	7,600	7,900
Gross Fixed Assets	18,000	22,000
Accumulated Depreciation	5,000	6,200
Net Fixed Assets	13,000	15,800
TOTAL ASSETS	20,600	23,700
Accounts payable	2,000	2,200
Short-term loans	1,200	1,400
Other current liabilities	800	850
Total current liabilities	4,000	4,450
Long-term loans	6,400	7,000
Share Capital	10,000	12,000
Retained earnings	200	250
TOTAL LIABILITIES & EQUITY	20,600	23,700

(a) Assess the cash flows that can be used to value the entire firm (i.e., equity plus debt portion).

 


(b) Assess the cash flows that can be used to value the equity portion of the firm. 

Answer rating: 100% (QA)

SOLUTION a To assess the cash flows that can be used to value the entire firm ie equity plus debt portion we need to calculate the free cash flows to ... View the full answer