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Company ABC estimated revenue is 10 million in 2019 and 2% growth per year. Profit margin...

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Finance

Company ABC estimated revenue is 10 million in 2019 and 2%growth per year. Profit margin is stable annually and equals to20%. Non-cash P&L items estimated at 12% of total sales.Company will purchase equipment at 2021 for 3 million. Interestexpense is 800.000 annually and tax rate is 20%. Calculate FCFF forfirst 3 years. Explain the method you would use to calculate PV offuture cash flows after year 3.

Using results, calculate value of the company if cost of capitalis 5% and PV of future cash flows after year 3 is 14 million.Calculate the share price if there are 1 million outstandingshares. Would you invest in the company if market share price is17$? Why?

Answer & Explanation Solved by verified expert
4.5 Ratings (779 Votes)
FCFF Net Income Interest 1tax rate Non cash charges working capital investment capital expenditures FCFF in 2019 in millions 2 12 064 384 FCFF in 2020 204 1224 064 390    See Answer
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Company ABC estimated revenue is 10 million in 2019 and 2%growth per year. Profit margin is stable annually and equals to20%. Non-cash P&L items estimated at 12% of total sales.Company will purchase equipment at 2021 for 3 million. Interestexpense is 800.000 annually and tax rate is 20%. Calculate FCFF forfirst 3 years. Explain the method you would use to calculate PV offuture cash flows after year 3.Using results, calculate value of the company if cost of capitalis 5% and PV of future cash flows after year 3 is 14 million.Calculate the share price if there are 1 million outstandingshares. Would you invest in the company if market share price is17$? Why?

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