You are asked to value a company and have the following forecast (in million dollars) of its future profits and future investments in new plant and working capital. From year 5 onwards, depreciation and investment in plants and working capital are expect
You are asked to value a company and have the following forecast (in million dollars) of its future profits and future investments in new plant and working capital.
Year | ||||
1 | 2 | 3 | 4 | |
Depreciation expenses | 20 | 30 | 35 | 40 |
Profit after tax (tax: 40%) | 36 | 42 | 48 | 48 |
Investment in plants and working capital | 12 | 15 | 18 | 20 |
From year 5 onwards, depreciation and investment in plants and working capital are expected to remain unchanged at year-4 levels. The Shard is financed 50% by debt and 50% by equity. Its cost of equity is 15% and its debt yields is 7%. The company pays corporate income tax at 40%.
i. Estimate the company’s overall value. (Hint: note that operating cash flows can be obtained by adding depreciation to profit after tax).
ii. What is the value of the company’s equity?
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You are asked to value a company and have the following forecast (in million dollars) of its future profits and future investments in new plant and working capital. From year 5 onwards, depreciation and investment in plants and working capital are expect
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