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Wurrall (6/04) – Free Cashflow

Forums › ACCA Forums › ACCA AFM Advanced Financial Management Forums › Wurrall (6/04) – Free Cashflow

  • This topic has 3 replies, 2 voices, and was last updated 9 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • April 5, 2016 at 5:51 am #309015
    Dinh
    Participant
    • Topics: 18
    • Replies: 15
    • ☆

    Dear Sir,

    In Wurrall question, the share price is calculated in the book as below:
    20×5. 20×6. 20×7. 20×8
    Free cashflow. 344 371 395 419
    PV of free CF as at 31/3/20×8 is: 419 x 1.06/(0.11-0.06) = 8,883 mil
    Loan at 31/3/20×8. (900)
    Free CF 7,983 mil
    share price = 7,983 mil/ 2,400 mil shares = 333 cents per share.

    Question: 8,883 mil in above calculation is the terminal value from year 20×9 onward. why do we ignore the CF before 20×9? ei. CF from 20×5 to 20×8.
    Thanks,

    April 5, 2016 at 7:13 am #309026
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54671
    • ☆☆☆☆☆

    You have not read the answer carefully enough because is says that 333 cents per share is the estimate of the share price at 31.03.20X8

    The current share price is given in the question, and the reason for estimating the price at 31.03.20X8 is because the managing director has publicly stated that the share price should increase by at least 100% during the next four years. Therefore we need to estimate the price in 4 years time to see if his statement is likely to be true.

    (In future, please ask in the Ask the Tutor Forum if you want me to answer. This forum is for students to help each other.)

    April 5, 2016 at 7:26 am #309028
    Dinh
    Participant
    • Topics: 18
    • Replies: 15
    • ☆

    thanks so much. Yes i will make question if any inthe ask tutor forum.

    April 5, 2016 at 8:54 am #309039
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54671
    • ☆☆☆☆☆

    You are welcome 🙂

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