3. First Choice Company is seeking buy another firm (MFG) as part of its strategic expansion growth. You have been hired as the consultant to value the firm. The current inflation rate in the economy is 3%. MFG anticipates a growth of 4% in revenue in the coming years. The shareholders of the target company anticipate return on equity between 6 and 8%. Banks that lend to companies in the industry quote interest on long term loans at 5% per annum in the long run. As a small company, MFG finances 70% of its operations with equity. Based on research MFG conducted last year, working capital is expected to grow at 1% of revenue while capital assets grow at 2% per annum. The expected depreciation rate is 5% per annum. Current Income tax rate is expected to increase by 2% with no additional increase in deferred tax rate. The research also showed that the average annual short-term loan would be 15,000 with an interest of 10 %. MFG's fixed cost is expected to grow at 1% in the coming years. The income statement and balance sheet for the past two years are presented below: MFG Company Income statement for the period ending December 31, 2020 2020 Revenue 250,000 Production expenses 110,000 Contribution margin 140,000 Other expenses: Depreciation 2019 200,000 100,000 100,000 35,000 37,500