calculate the current share price of ABC PLC based on the following parameters using shareholder value analysis.

Financial Information Systems
Order Details/Description

The project is basically imputing figures in excel, whilst keeping some variables constant and manipulating others, this is part B below:

Bar PLC is planning to make a take-over bid for ABC PLC. The Company has approached you as a management consultant and have asked that you calculate the current share price of ABC PLC based on the following parameters using shareholder value analysis.

Key value drivers for ABC PLC.

Sales 2014(yr 0) £400,000,000

Forecast period 5 years. Any longer is considered too uncertain

Sales growth rate per annum 4%. This is based on a revised pricing strategy

Operating profit margin 7%. Increasing by 2% per annum for the next 5 years

Incremental fixed investment 6% Decreasing by 1% per year

Incremental working capital 8% Decreasing by 1% per year

Corporation tax rate 30%. This is expected to remain constant for the next 5 years.

Target Capital Structure 70% Equity

30% Debt

Gross cost of debt 4%

Treasury bills rate 1%

FTSE index 6% (Current total market returns)

Estimated Beta factor 1.1

Total existing debt £500,000,000

Total number of shares 1,000,000,000

a) Using SVA, calculate the estimated current share price of ABC PLC on a spreadsheet. (25 %)

b) From the following mutually exclusive scenarios using a spreadsheet, measure and comment upon each one’s sensitivity to the share price.

· Sales growth rate

· Corporation tax rate changes

· Profit margin remains the same (15 %)

c) It has been argued that SVA is flawed in that there are too many steps in the model and too many variables attached to them. Analyse this statement and in doing so evaluate the need for each step in the model. (35 %)

d) Analyse how genetic algorithms may improve managerial decision-making, highlighting both the benefits and weaknesses they possess.

The steps of the SVA: step 1. Calculate WACC 2. Calculate future sales 3. Calculate after tax cash inflow 4. Calculate incremental investment needs ( only for first 5 years) 5. Calculate cumulative PV ( PV of first five years) 6. Calculate residual value ( PV of year 6 to infinity) 7. Calculate business value ( add 5 + 6 all discounted) 8. Calculate share price. This must be done in excel.

Also part c and d require a written report where you can also input comments on part b, it must add up to around 3000 words.

 

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