Question

You have reformulated the Imber Aedax Company’s most recent financial statements and extracted the following information:

Year ended 31 Dec 2019	$ million
Sales	35,200
Interest expense minus interest income	291
Earnings before tax	13,168
Tax expense	2,384
Comprehensive Income (CE)	11,809

As at 31 Dec 2019	$ million
Net operating working capital (OWC)	936
Net non-current operating assets (NNCOA)	42,287
Net financial obligations (NFO)	11,906

a) Calculate NOA (net operating assets) and CSE (common shareholders’ equity) at the end of 2019.

b) Using the 2019 effective tax rate, calculate NFE (net financial expense) and OI (operating income or NOPAT) for the year 2019.

	2020	2021	2022	thereafter
Sales growth	10%	7%	4%	3%
OI / sales	30%	25%	20%	18%
Previous year OWC / this year's sales		2.2%	2%	2%
Previous year NNCOA / this year's sales		105%	100%	98%
NFO / NOA	27.5%	27.5%	27.5%	27.5%

c) Predict sales and OI for the years 2020 to 2022. Predict NOA, NFO and CSE for the years 2020 to 2022.

d) Assuming that the 2019 tax rate continues to apply in future and that the cost of debt before tax shield benefit is 2%, find the after-tax cost of debt.
Assuming that the cost of equity is 4.9% and using information given in the forecast table above, calculate the WACC (weighted average cost of capital). Round it to the nearest one tenth of a percent.
Assuming that NFE equals previous year NFO times the after-tax cost of debt, calculate NFE and CE for the years 2020 to 2022.

e) Calculate predicted AE (abnormal earnings), AOI (abnormal operating income or abnormal NOPAT) and FCF (free cash flow) for the years 2020 to 2022.