Page 357 - AFM Integrated Workbook STUDENT S18-J19

Answers

Solution

$m T 1 T 2 T 3 T 4 onwards

Revenue 262.5 275.6 289.4 289.4

Op. profit 21.0 27.6 28.9 28.9

Tax (20%) (4.2) (5.5) (5.8) (5.8)

Incremental NCA (4) (4) (4) –
investment

Incremental WC (3.1) (3.3) (3.5) –
investment

FCF 9.7 14.8 15.6 23.1

DF 7% 0.935 0.873 0.816 (1/0.07) × 0.816

PV 9.1 12.9 12.7 269.3

Overall PV = $304 million. So value of equity

= $304m + $15m (ST investments) - $56m (debt value) = $263 million

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