GROWTHTEC PLC expects after tax earnings this year to equal approximately €10 million. The expected earnings are net of depreciation equaling €3 million annually. The company expects earnings to keep growing at a rate of 20% per year. It will finance this growth by reinvesting €10 million from earnings next year. The company has no debt.

Investors consider GROWTHTEC risky, and they want a 30% return on their investment in the company’s equity.

(a) Forecast GROWTHTEC’s free cash flow for next year.

(b) What is the total value of this enterprise at the discount rate of 30%? State your assumptions.

(c) If the company decides to pay a dividend of €2 million next year, what effect, if any, would this have on its financing?

(d) If this level of dividend payout were to continue indefinitely, what would be the net impact on the value of the enterprise? State your assumptions.