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Homework answers / question archive / 1 An analyst estimates a company's enterprise value at $1,372 million
1
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
2
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
3
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%?
4
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?
1
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
2
For ROCE calculation, we will not consider cash.
Return on capital employed (ROCE)=NPAT/(debt+equity)
ROCE=59/(285+477)=7.74%
3
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
4
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
