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Imagine it is currently the first day of 2019

Finance Jan 15, 2021

Imagine it is currently the first day of 2019. The corporate tax rate is 40% and the WACC is estimated to be 13% pa. Suppose also that there is no surplus cash in any year and that Terminal Value (TV) at the end of 2022 is estimated to be 4 times the 2022 EBIT. All amounts are given in thousands of dollars ($k) as at the last day of each year. The following forecast has been made for Zilla Ltd: Amounts in thousands of dollars ($k) 2018 (past) 2019 2020 2021 2022 Shareholders' Equity 300 312 324 337 350 Debt 200 204 208 212 208 EBIT 120 128 137 147 157 Question: Calculate the Residual Income (RI) for 2022. Enter your answer in thousands of dollars and round your answer to two decimal places. For example, an answer of $12.345678k or $12,345.678 should be entered as 12.35. 

Expert Solution

Residual income for 2022

= EBIT for 2022 x (1 - T) - WACC x (D + E) of 2021

= 157 x (1 - 40%) - 13% x (337 + 212)

=  22.83

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