A. Corporate Valuation Model Problem: The Alliance Front, Inc. is set to introduce their company to the market through an initial public offering. The management did not hire a financial analyst to measure the valuation of the company. Even though that's the case, its management committee suggested the following conditions for anyone who could assist them with the valuation of their 1,000,000 common shares for market capitalization at 10% discount rate: 1. They own two buildings for commercial leasing to businessmen and professional groups or clubs. 2. 2. Each building commands a revenue of Php 12 million per year. The 55% of these revenues go to expenses, including the tax dues per year. 3. Each building has 60 rooms fully-furnished and airconditioned. 4. But the problem with the second building is that it is threatened by the Philippine government to expropriate the land. 5. The management committee devised three scenarios ofwhat they can do since the initial public offering will start around January 2022. Time is running out so they are forced with the said scenarios just for us to produce the corporate valuation and determine the market price of 1 common stock. Status Quo Scenario This scenario tells us that in a 20-year time frame, the company accepts the fact that the Philippine government will expropriate the land of the second building on the 11th year of operations. But the management thought that this should receive only 10% probability weight because this means their leaders did not do anything to save it from the hands of the corrupt officials. Lobby Plan Scenario This scenario tells us that in a 20-year time frame, the company will incur Php 2 million lobby expenses on top of the narrated expenses at number 2. Here, the company will pass the additional lobby expenses to the occupants of these 60 rooms. So the bottom line or net income won't change every year. This scenario receives 60% probability weight and officially assigned as the base of all weights in valuation. The additional expense will be incurred every year up to the 20th year. New Asset Scenario In the scenario, the management decided that they will negotiate with the government to give up the second building on the 13111 of the year 20-year life span of their operations. Unlike the Status Quo Scenario, the New Asset Scenario will just let the old asset go and try to build a new building, assuring that there will be no qualms or issues it will encounter in the near future. The new asset will be constructed but will not be included in the computation of the corporate valuation since it has no assurance yet occurrence