You have been asked to estimate the value of a Canberra inc, a mature Australian...
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Accounting
You have been asked to estimate the value of a Canberra inc, a mature Australian Steel company for acquisition by a US steel company. The expected cash flows for next year have been estimated below and they are expected to grow 3% a year in perpetuity, in millions of Australian dollars:
Most recent year
Next year
Net income
$ 100.00
$ 103.00
- (Cap Ex - Depreciation)
$ 40.00
$ 41.20
- Chg in non-cash WC
$ 20.00
$ 20.60
+ New Debt issued
$ 15.00
$ 15.45
Free Cash Flow to Equity
$ 55.00
$ 56.65
The US company has a US dollar cost of equity of 9% and a US $ cost of capital of 8%. Australia can be viewed as a mature market. If the inflation rate is 4% in Australia and 2% in US, what value would you attach to these cash flows?
(Hint Currency & cash flow consistency)
a. $1,452 b. $944 c. $696 d. $1,940 e. $794
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