Call V 01 09 20 with SOL

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1 ACCOUNTING, FINANCE AND CONTROL WRITTEN TEST CALL 5 _ 1st September 2020 1. Company A is an energy company, focused on renewables. Some reliable estimates for the years 2020, 2021, 2022 and 2023 are available and reported below (data in k€): Year 1 (2020) • FCFF: 50,000 • Dividends paid: 0 • Debt at the end of the year: 20,000 • Financial Expenses (net of taxes): 1,120 Year 2 (2021) • FCFF: 55,000 • Dividends paid: 5,000 • Debt at the end of the year: 20,000 • Financial Expenses (net of taxes): 1,120 Year 3 (2022) • FCFF: 57,000 • Dividends paid: 0 • Debt at the end of the year: 15,000 • Financial Expenses (net of taxes): 840 Year 4 (2023) • FCFF: 60,000 • Dividends paid: 0 • Debt at the end of the year: 15,000 • Financial Expenses (net of taxes): 840 You also know that: • Debt at the end of 2019 was 10,000 k€; • Cost of equity (ke) can be considered constant during these years; • Reliable estimates can be made only up to 2023; • TVE (perpetuity with no growth) = 591,600 k€ Considering the available data and using the DCF methodology, and rounding the calculations at the second digit, which is the EQUITY VALUE of Company A? (5 Points) A. EQUITY VALUE is around 576,839 k€ B. EQUITY VALUE is around 174,163 k€ C. EQUITY VALUE is around 809,680 k€ D. EQUITY VALUE is around 764,368 k€ 2 Solution The first step consists in calculating FCFE for all the 4 years as follows: Year nr--> 1 2 3 4 Data in K€ 2020 2021 2022 2023 FCFF 50,000 55,000 57,000 60,000 - Financial Expenses (net of taxes) 1,120 1,120 840 840 + Delta Debt (debt yeart – debt year t-1) 10,000 0 - 5,000 0 - Dividends paid 0 5,000 0 0 FCFE 58,880 48,880 51,160 59,160 Then, FCFE for each year has to be actualized. To do so, ke is calculated as FCFE 2023 / TV E = 59,160 / 591,600 = 10%. The actualized FCFE are…