(a) Explain and discuss the discounted free cash flow equity valuation model.

(b) CBT has reported EBIT of $500mn this year. Its net investment, including capital expenditure net of depreciation and working capital investment is $200mn. Its EBIT and investment needs are expected to grow at a constant rate of 1% per year. It is expected that CBT maintains the current debt-to-equity ratio of 4. The corporate tax rate is 20%. The required return on its assets (business) is 14%. The cost of the debt capital is 5%. The number of total outstanding shares is 100mn.

(i) Obtain the value of stock based on discounted free cash flow model. Explain your procedure.

(ii)What is the amount of tax shield in the enterprise value? Explain.