Coroporate Finance1.For the past three years, results for Jones plc have been as follows (all figures in m):P&L Account 2010 2011 2012Sales 100 110 125Cash operating expenses 40 45 50Depreciation 5 6 7Total operating expenses 45 51 57Operating profit 55 59 68Taxes on operating profit 16.5 17.11 19.72NOPAT 38.5 41.89 48.28Net interest charges 2.8 2.485 2.862Profit after tax 35.7 39.405 45.418Dividend 20 22 25Year end Balance Sheet 2010 2011 2012Fixed assets, gross 150 180 195Depreciation balance 20 26 33Net Fixed assets 130 154 162Current Assets 20 22 25Current Liabilities 10 11 12Long term loans 50 57.595 47.177Net Assets 90 107.405 127.823Total equity 90 107.405 127.823.You now wish to value the firm, as at 1st January 2013, using the Free Cash Flow (FCF) method. You decide to do this by first establishing what the free cash flows were for 20011-12, and then forming a judgement on what the value drivers are likely to be going forward.a) What were the actual FCF figures for 20011 and 2012? (5 marks)b) What were the following value drivers for 2011 and 2012: Realised sales growth; operating margin; tax rate; opening fixed assets per 1 of sales; opening net current assets per 1 of sales? (5 marks)c) You estimate that in 2013 sales will be 135m, and that sufficient investment in net current assets and fixed assets has been made in 2012 to support these sales. The cash tax rate will fall to 28% in 2013, but operating margin before tax will be the same as the 2012 margin. Beyond 2013, the firms sales will grow at 5% and the rate of asset investment will be maintained at the level implied by the end 2012 balance sheet values and the 2013 forecast sales figure (i.e. you believe the relevant asset turnover ratios can be used to forecast the required fixed and net current asset bases). Value the firm (i.e. find the enterprise value) using the FCF method using a weighted average cost of capital of 8%. What is the implied equity value at 1.1.13?.
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