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Question - The Financial statements of ABC Steel Fabrications are as shown below with the actual results for year 2020 and the projections for year 2021. Free cash Flow is expected to grow at a rate of six percent rate after 2021. The Weighted Average Cost of Capital for the company is twelve percent.
INCOME STATEMENT
Actual (2020) Sh' Million
Projected (2021) Sh' Million
Sales
500
530
Costs (except Depreciation)
360
381.6
Depreciation
37.5
39.375
Total Operating Costs
397.5
420.975
Earnings Before interest and tax
102.5
109.025
Less interest
13.9
14.65
Earnings before tax
88.6
94.375
Taxes @30%
26.58
28.3125
Net Income before preferred dividends
62.02
66.0625
Preferred dividends
6
56.02
60.0625
Common dividends
40.8
29.7
Addition to retained Earnings
15.22
30.3625
Number of shares
10
Earnings per share
5.602
6.00625
Dividend per share
4.08
2.97
BALANCE SHEET
ASSETS
Cash
5.3
5.6
Marketable Securities
49.9
51.9
Accounts Receivable
53
56.2
Inventories
106
112.4
Total Current Assets
214.2
226.1
Net Plant and Equipment
375
393.75
Total Assets
589.2
619.85
LIABILITIES AND EQUITY
Accounts payable
9.6
11.2
Notes payable
69.9
74.1
Accruals
27.5
28.1
Total Current Liabilities
107
113.4
Long-Term bonds
140.8
146.55
Preferred Stock
35
Common stock
160
Retained Earnings
146.4
164.9
Common equity
306.4
324.9
Total Liabilities and Equity
Required -
(a) Estimate Free Cash Flow as at end of 2021?
(b) Estimate the value of Operations as at the end of year 2020?
(c) Estimate the value of the company and its price per share as at 31st December, 2020?
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