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1  An analyst estimates a company's enterprise value at $1,372 million

Finance Sep 04, 2020

An analyst estimates a company's enterprise value at $1,372 million. What is the fair value of equity per share (to two decimal places) if the company has $72 million in short-term debt, $428 in long-term debt, $39 in cash and an issued capital of 68 million shares

What is the expected ROCE (to two decimal places) of a company that has book value of equity of $477 million, book value of debt of $285 million, cash of $46 million and expected NPAT of $59 million

A company generates an after-tax profit of $135 million on an opening book value of equity of $834 million. What is the company's residual earnings (to one decimal place) if its cost of equity capital is 8.7%?

A company reports EBIT of $97 million, depreciation and amortisation of $19 million, capital expenditure of $28 million and an increase in net working capital of $5 million. The corporate tax rate is 30%. What is the company’s free cash flow (to one decimal place) using the approximation method?

Expert Solution

Fair value of Equity share = Enterprise Value - [ Liabilities ] / No. of Equity Shares

= [ $ 1372 M - [ $ 72 M + $ 428 M ] ] / 68 M

= [ $ 1372 M - $ 500 M ] / 68 M

= $ 872 M / 68 M

= $ 12.82

For ROCE calculation, we will not consider cash.

Return on capital employed (ROCE)=NPAT/(debt+equity)

ROCE=59/(285+477)=7.74%

Answer:-

Residual Earnings = Profit - (Equity*Cost of equity capital)

Residual Earnings = $ 135 - (834*8.70%)

Residual Earnings = $ 135 - (72.558)

Residual Earnings = $ 62.4 million

Free cash flow

= EBIT x (1 - T) + Depreciation and amortisation - Capital expenditure - increase in working capital

= 97 x (1 - 30%) + 19 - 28 - 5

= $ 53.9 million

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