Table 1: FBC statement of financial position (R millions) 2018 2017 Cash and equivalents R149 R83 You are an investment analyst at FI Investments tasked to value FBC firm a Southern Agricultural Conglomerate. The following financial information was recently released for FBC.
Table 1: FBC statement of financial position (R millions) 2018 2017 Cash and equivalents R149 R83
You are an investment analyst at FI Investments tasked to value FBC firm a Southern Agricultural Conglomerate. The following financial information was recently released for FBC. The company’s 2018 and 2017 annual financial reports are contained in tables 1 and 2 below, along with important additional information:
Accounts receivable
295
265
Inventory
275
285
Total current assets
R719
R633
Total fixed assets
3 909
3 856
Accounts payable
228
220
Notes payable
0
0
Total current liabilities
228
220
Long term debt
1 800
1 650
Total liabilities and shareholders equity
3 909
3 856
Number of shares outstanding (millions)
100
100
Additional information:
· Depreciation (2018): R483.
· The firm spent R250m in profitable projects during the course of 2018
· WACC : 15%
· Cost of equity of the firm: 10%
· Tax rate : 40%
Table 2: FBC statement of comprehensive income
(R millions except for share data)
2018
2017
Total revenues
R3 175
R3 075
EBIT
495
448
Interest expense
104
101
Net Income
235
208
Dividends per share
R0.80
R0.80
Use the information given, to answer the following:
a) Calculate the Free Cash Flow to the Firm (FCFF) for the year 2018. [7 marks]
b) You are told that the Free Cash Flow to Equity (FCFE) of the firm will continue to grow at a rate of 5% for the next 3 years, after which it will stabilize to a rate of 3%. Calculate the intrinsic value of each of FBC’ shares. 9 (Use 2.d.p in your calculations & final answer for this question)
[13 marks]
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