Today is January 1, 2023. You estimate the following for A2Z's future financials (C$ million): Year
Question:
Today is January 1, 2023. You estimate the following for A2Z's future financials (C$ million):
Year | 2023E | 2024E | 2025E |
Revenue | 950 | 962 | 972 |
Costs | 825 | 835 | 845 |
Depreciation | 65 | 65 | 70 |
Capital Expenditures | 90 | 90 | 90 |
Change in NWC | -10 | -10 | -10 |
You expect that after 2025, A2Z's free cash flows will grow at 3% per year in perpetuity. A2Z has 10 million shares outstanding, C$100M of debt, and C$10M in cash. Its weighted average cost of capital is 10%. The firm expects to face a tax rate of 20% on profits:
a. Calculate a target share price using these assumptions?
b. Conduct a sensitivity analysis by creating a table of equity values for discount rates r equal to 8%, 8.5%, 9%... all the way to 12% and for growth rates g between of 3%, 3.5%,..., 7%. Provide some intuition for the pattern that you see?
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill