Quetta Cement (Pvt.) Limited is a non-listed company involved in production and sales of cement. In recent years, the company's exports have grown significantly. In order to sustain the growth the management has decided to expand its production facilities for which external funding is required. The company's financial advisers have suggested that the legal status of the firm be converted from private to public limited, so that the external funding could be obtained from the general public by way of public offering of company's shares. The management is puzzled that at what price the shares could be offered to the general public. Assume that you are the Manager Finance of the company and can easily find the offering share price through the corporate valuation model on the basis of the firm's summarized audited financial data as given below: | ASSETS Amounts: Rs. in *000 LIAB. & | 2017 2017 2018 2018 Cash EQUITY Accounts 41,000 43,000 78,000 84,000 Payable Short Term Investments 99,000 104,000 Accrued 43,000 45,000 Expenses S. T. Bank 195,000 Loan Accounts 120,000 126,000 207,000 Receivable Inventories 159,000 168,000 Total Current 316,000 336,000 Liab. Long Term Loan Total Current Assets Plant & Equipment (Net) 419,000 441,000 246,000 258,000 398,000 420,000 Common Stock Retained 150,000 150,000 105,000 117,000 Earnings 817,000 861,000 Total Liab. & 817,000 861,000 Equity |Total Assets Other information pertaining to the company is as follows: EBIT (2018): Rs. 130 million WACC: 11.00% Tax Rate: 35% FCF Growth Rate: 5% per year from 2018 onwards Number of Shares Outstanding: 10,000,000 Questions A. Apply the Corporate Valuation methodology to compute the fair value (intrinsic value) of the shares of the firm. B. What other techniques can be applied to compute the intrinsic value of shares of the company? C. Compute the book value per share (BVPS) for both years (2017 and 2018). How can the concept of book value be defined? D. Define the term “Free Cash Flow", what is its significance in corporate finance? E. Discuss the value drivers in context of value based management?

Quetta Cement (Pvt.) Limited is a non-listed company involved in production and sales of cement. In recent years, the company's exports have grown significantly. In order to sustain the growth the management has decided to expand its production facilities for which external funding is required. The company's financial advisers have suggested that the legal status of the firm be converted from private to public limited, so that the external funding could be obtained from the general public by way of public offering of company's shares. The management is puzzled that at what price the shares could be offered to the general public. Assume that you are the Manager Finance of the company and can easily find the offering share price through the corporate valuation model on the basis of the firm's summarized audited financial data as given below: | ASSETS Amounts: Rs. in *000 LIAB. & | 2017 2017 2018 2018 Cash EQUITY Accounts 41,000 43,000 78,000 84,000 Payable Short Term Investments 99,000 104,000 Accrued 43,000 45,000 Expenses S. T. Bank 195,000 Loan Accounts 120,000 126,000 207,000 Receivable Inventories 159,000 168,000 Total Current 316,000 336,000 Liab. Long Term Loan Total Current Assets Plant & Equipment (Net) 419,000 441,000 246,000 258,000 398,000 420,000 Common Stock Retained 150,000 150,000 105,000 117,000 Earnings 817,000 861,000 Total Liab. & 817,000 861,000 Equity |Total Assets Other information pertaining to the company is as follows: EBIT (2018): Rs. 130 million WACC: 11.00% Tax Rate: 35% FCF Growth Rate: 5% per year from 2018 onwards Number of Shares Outstanding: 10,000,000 Questions A. Apply the Corporate Valuation methodology to compute the fair value (intrinsic value) of the shares of the firm. B. What other techniques can be applied to compute the intrinsic value of shares of the company? C. Compute the book value per share (BVPS) for both years (2017 and 2018). How can the concept of book value be defined? D. Define the term “Free Cash Flow", what is its significance in corporate finance? E. Discuss the value drivers in context of value based management?

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter21: Dynamic Capital Structures And Corporate Valuation

Section: Chapter Questions

Problem 3MC: David Lyons, CEO of Lyons Solar Technologies, is concerned about his firms level of debt financing....

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