INV3701 Assignment 2 Semester 2 2023

INV3701
ASSIGNMENT 2 SEMESTER 2 2024

,
,Calculations
Current FCFF (1+growth rate) 9.2(1+0.06)
Total value of Greek manufacturing = (WACC−growth rate)
= (0.093−0.06) = 295.52 million

Total value of equity = Total value of firm – Total value of debt

Total value of equity = 295.52 – 132.5 = 163.02 million

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Calculations

WACC = (Wd x Kd (1-Tax rate)) + (We x Ke)
WACC = (0.25 x 8.4) + (0.75 x 13.11) = 11.93%

Where, Ke = Rf + Beta (Rm – Rf)

Ke = 6.4% + 1.1 (12.5 – 6.4) = 13.11




Calculations
Expected FCFF
Value of the firm = (WACC−growth rate)

Since WACC is 13.11,
205 762
Value of firm = (0.1311−0.056) = R2 739 840

,Calculations

Terminal Value = E2 x Industry P/E
Terminal value = 2.40 x 28 = 67.20

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Calculations

Normalised Earnings per share = Average ROE of the previous full cycle x Current book value per
share

Normalised Earnings = 0.32 x 14 = 4.48

,Calculations

EVA = NOPAT – WACC (TOTAL CAPITAL)

EVA = 120 – 0.0506 (88 + 94)
EVA = 110.79

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Calculations

Required return = 6 + 1.25 (9.5) = 17.875%

,Calculations
ROE−g 0.32−0.04
P/B = r−g
= (0.1788−0.04) = 2.02
E
( )(1−b)(1+g) (0.19)(1.049007692)(1.04)
S
P/S = r−g
= 0.1788−0.04
= 1.49

To have the retention ratio we make use of the trailing P/E ratio
(1−b)(1+g)
Trailing P/E = r−g

1−b(1.04)
7.86 = 0.1788−0.04

1.090968 = (1-b)(1.04)

1 – b = 1.049007692

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Calculations
(ROE−r )
Value of share = B0 + ( r−g
) x B0

0.2390−0.14
Value of share = 88 + ( 0.14−0.0580 ) 88 = R194.24