steb by steb solution

- t . El Draw 2. Answer both parts a) and b): a a) At the end of its financial year 2018, an analyst made the following forecast for John Lewis plc for financial years 2019-2022 (in millions of pounds): Cash In-flows from Operations Cash Out-flows Investment 2500 2019 2020 2021 2022 2600 2700 1300 1400 1700 1200 2850 John Lewis plc reported 6000 million in total debt at the end of 2018. Use a required return of 9% to calculate both the enterprise value and equity value for M&S plc at the end of 2018 under two forecasts for long-run cash flows: i. ii. Free cash flow will remain at 2022 levels after 2022. Free cash flow will grow at 4% per year after 2022. Assuming John Lewis plc had 700 million shares outstanding at the end of 2018, calculate the value per share under both scenarios. Based on your valuation, recommend a trading strategy if the quoted price on the stock exchange is at 25 per share. 130 marks