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(Solved): a) ABSA Zambia is planning to Acquired FNB .FNB, s current years free cash flow is $8 million. It ...



a) ABSA Zambia is planning to Acquired FNB .FNB, s current year’s free cash flow is $8 million. It is projected to grow at 18% per year for the next five years. It is expected to grow at a more modest 5% beyond the fifth year. The firm estimates that its cost of capital is 11% during the next five years and then will drop to 8% beyond the fifth year as the business matures.

Advice if ABSA should proceed with the Acquisition plan if the offer price by FNB shareholders is $250 million.

b) Assuming that FNB, s current year’s free cash flow is still $15 million but It is projected to grow at a constant rate of 5% per year indefinably. The firm estimated cost of capital is 10%.

Advice if ABSA should proceed with the Acquisition plan if the offer price by FNB shareholders is $100 million.

c)Zambia national commercial bank(zanaco) is listed on the Lusaka Securities exchange while Indo Zambia bank is not. In the event of a merger or acquisition.

Suggest and explain which valuation models be used to measure the value of each of the two companies?



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a) To determine if ABSA should proceed with the acquisition plan, we need to calculate the present v...
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