$2$:$48$ PM Sat Apr $5$

$605$ Assignment.pdf

Ouestion $\backslash (1\backslash$quad $\backslash )(\backslash (50\backslash \%\backslash ))$:

Please use the following information to answer question $1.$

Esprit de Corporation $("$Esprit$")$ is a fashion brand listed in the Stock Exchange of Hong Kong. Esprit's consolidated cash flow statement for the year ended $30$ June, $2020$ is reproduced below.

Exhibit $1$

$\backslash$begin$\{$tabular$\}\{$ll$\}$

Consolidated Statement of Cash Flows $\backslash \backslash$

$\backslash$hline

$\backslash$end$\{$tabular$\}$

Exhibit $2$: Risk free rate reference

$\backslash$begin$\{$tabular$\}\{|$l$|$l$|\}$

$\backslash$hline Bonds & Spot Yield $\backslash \backslash$

$\backslash$hline $\backslash$begin$\{$tabular$\}\{$l$\}$

Hong Kong $5-$year Exchange $\backslash \backslash$

fund note

$\backslash$end$\{$tabular$\}$ & $\backslash (2\mathrm{.}45\backslash \%\backslash )\backslash \backslash$

$\backslash$hline

$\backslash$end$\{$tabular$\}$

$2$

$\backslash$begin$\{$tabular$\}\{|$l$|$l$|\}$

$\backslash$hline $5-$year US Treasury & $\backslash (2\mathrm{.}63\backslash \%\backslash )\backslash \backslash$

$\backslash$hline $10-$year US Treasury & $\backslash (2\mathrm{.}69\backslash \%\backslash )\backslash \backslash$

$\backslash$hline Fed fund rate & $\backslash (0\mathrm{.}73\backslash \%\backslash )\backslash \backslash$

$\backslash$hline

$\backslash$end$\{$tabular$\}$

Exhibit $3$: Capital Market Information

$-$ ESPRIT Beta: $1\mathrm{.}07$

$-$ Share outstanding: $2831$ million

$-$ Implied market risk premium for Hang Seng Index: $7\mathrm{.}99\backslash \%$p$.$a$.$

$-$ Corporate tax rate applicable to ESPRIT is $15\backslash \%.$

$1$a$.$ What is the FCFE for ESPRIT for $2020?(5\backslash \%)$

$1$b$.$ What is the FCFF for ESPRIT for $2020?(5\backslash \%)$

$1$c$.$ What should be ESPRIT's shareholder's required rate of return under CAPM assuming the USD and HKD yield curve are of the same shape $(5\backslash \%)?$

$1$d$.$ Assuming a perpetual annual growth rate of $\backslash (2\backslash \%\backslash )$ for ESPRIT's FCFF$,$ what would be the target price for ESPRIT's share $($in HKD$)$ given a WACC of $\backslash (3\mathrm{.}8\backslash \%\backslash )$ in $2021?$ Assuming the liabilities are recorded at fair$-$value in Exhibit $4(10\backslash \%)2$:$48$ PM Sat Apr $5$

$-39\backslash \%$

$605$ Assignment.pdf

Ouestion $\backslash (2\backslash$quad $\backslash )(\backslash (25\backslash \%\backslash ))$

Please use the following information to answer question $2.$

Consolidated Motors is a U$.$S$.-$based corporation that sells mechanical engines and components used by electric utilities. Its Canadian subsidiary, Consol$-$Can, operates solely in Canada. It was created on $31$ December $20$X$6$ and Consolidated Motors determined at that time that it should use the U$.$S$.$ dollar as its functional currency.

Chief Financial Officer Monica Templeton was asked to explain to the Board of Directors how exchange rates affect the financial statements of both Consol$-$Can and the consolidated financial statements of Consolidated Motors. For the presentation, Templeton collects Consol$-$Can's balance sheets for the years ended $20$X$6$ and $20$X$7($Exhibit $1),$ as well as relevant exchange rate information $($Exhibit $2).$

$\backslash$begin$\{$tabular$\}\{|$c$|$c$|$c$|\}$

$\backslash$hline $\backslash$begin$\{$tabular$\}\{$l$\}$

Consol$-$Can Con $\backslash \backslash$

EXHIBIT $1$ Fiscal Years End $($Canadian $\backslash$$$,$ in

$\backslash$end$\{$tabular$\}$ & $\backslash$multicolumn$\{2\}\{|$l$|\}\{$Consol$-$Can Condensed Balance Sheet Fiscal Years Ending $31$ December $($Canadian $\backslash$$$,$ in Millions$)\}\backslash \backslash$

$\backslash$hline Account & $207$ & $206\backslash \backslash$

$\backslash$hline Cash & $135$ & $167\backslash \backslash$

$\backslash$hline Accounts receivable & $98$ & $-\backslash \backslash$

$\backslash$hline Inventory & $77$ & $30\backslash \backslash$

$\backslash$hline Fixed assets & $100$ & $100\backslash \backslash$

$\backslash$hline Accumulated depreciation & $(10)$ & $-\backslash \backslash$

$\backslash$hline Total assets & $400$ & $297\backslash \backslash$

$\backslash$hline Accounts payable & $77$ & $-\backslash \backslash$

$\backslash$hline Long$-$term debt & $175$ & $175\backslash \backslash$

$\backslash$hline Common stock & $100$ & $100\backslash \backslash$

$\backslash$hline Retained earnings & $48$ & $-\backslash \backslash$

$\backslash$hline Total liabilities and shareholders' equity & $400$ & $275\backslash \backslash$

$\backslash$hline

$\backslash$end$\{$tabular$\}$

$5$