As a student of corporate valuation, you have been asked to estimate the value of Nomad Limited, a private company using the discounted cash flow approach. You have been provided with the following information.
On 31st December,2016, Nomad Limited earned Kenya Shillings 5 million i EBIT on Revenues of Kenya Shilling 30 million. The following extract has also been provided for the financial year 2016.
i) Total amount of debt outstanding in book value terms was 3 million Kenya Shillings. The pre-taxt interest rate on debt is 10%. You have also established that book value and market value of debt is the same.
ii) The value of equity shown in the statement of financial position 5 million Kenya Shillings. Market value of equity for this firm should be based on the similar publicly listed companies' relationship between book values and market values.
iii) The amount for capital expenditure and depreciation was 2 million and 1 million respectively.
iv) Amount of working capital investment for 2016 estimated as 2% of total revenue.
You have also been provided with the following information in respect of five comparable companies listed at the Nairobi Stock Exchange
a) The average beta has been estimated at 1.5
b) The average debt-equity ratio based on market value of equityis 0.25
c) It is estimated that: Market value of equity = 3*Book value of equity
d) Tax rate for all companies is 30%
You have also been provided with the folowing additional data:
i) The average return on Nairobi Securities Exchange All Share Index (NASI) is 10%
ii) Average return (Yield) on a ten year treasury bond has been estimated as 6%
iii) Revenues, EBIT, fixed capital investment, depreciation and working capital investment are expected to grow at an annual rate of 5% for ten years and 2% thereafter forever except for fixed capital investment and depreciation which will offset each other at the steady state.
Required:
Estimate the enterprise value for Nomad Limited (use 3 d.p)