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Question: Gemco Jewellers earned $ 5 million in after-tax operating income in the most recent year. The firm also had capital expenditures of $ 4 million and depreciation of $ 2 million during the year, and the non-cash working capital at the end of the year was $ 10 million.
a. Assuming that the firm's operating income will grow 20% next year, and that all other items (capital expenditures, depreciation and non-cash working capital) will grow at the same rate, estimate the free cash flow to the firm next year.
b. If the firm can grow at 20% for the next 5 years, estimate the present value of the free cash flows to the firm over that period. You can assume a cost of capital of 12%.
c. After year 5, the firm's capital expenditures will decline to 125% of revenues, and the growth rate will drop to 5% (in both operating income and non-cash working capital). In addition, the cost of capital will decline to 10%. Estimate the terminal value of the firm at the end of year 5.
d. Estimate the total value of the operating assets of the firm.
Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..
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