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Could you please explain why the perpetuity for the value of the buyout was calculated as:
Estimated value based on cash flows to perpetuity = 28·4/(0·11 – 0·05) = $473·3m
and not 28.4(1.05)/(.011-.05) = 497m
Also why is the growth on profit before tax of 5% applied before depreciation. I’ve personally always believed that profit before tax would be the amount right before calculating tax so depreciation would be included there.
As you realise, the formula is the same as the dividend growth formula.
That formula has Do(1+g) on the top, which is what you are wanting to do.However Do is the current dividend, and so Do(1+g) is the dividend in 1 years time.
I know we are not using dividends here, but 28.4 is already the amount in 1 years time.
I am not quite sure what you are asking in your last sentence 🙁
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