A financial planner who claims to have a superior method for picking stocks is attempting to lure one of your clients away from you. He claims the best way to find the value of a stock is to divide EBITDA by the risk$-$free bond rate. He is urging your client to invest in Jeitu Inc. The planner says that Jeitu$$s EBITDA of $$1,580$ million divided by the long$-$term government bond rate of $7\%$ equals a total value of $$22,571\mathrm{.}4$ million. With $318$ million shares outstanding, Jeitu$$s value per share using this method is $$70\mathrm{.}98.$ Jeitu$$s shares currently trade at $$36\mathrm{.}50.$

a$.$ Provide your client with an alternative estimate of value based on a two$-$stage FCFE valuation approach. Use the following assumptions:

$$ Net income is currently $$600$ million. Net income will grow by $20\%$ annually for the next three years.

$$ The net investment in operating assets $($capital expenditures less depreciation plus investment in working capital$)$ will be $$1,150$ million next year and grow at $15\%$ for the following two years.

$$ Forty percent of the net investment in operating assets will be financed with new debt financing.

$$ Jeitu$$s beta is $1\mathrm{.}3$; the risk$-$free rate is $7\%$; the equity risk premium is $4\%.$

$$ After three years, the growth rate of net income will be $8\%$ and the net investment in operating assets each year will drop to $30\%$ of net income.

$$ Debt is and will continue to be $40\%$ of total assets.

$$ Jeitu has $318$ million shares outstanding.

b$.$ List what is wrong with the valuation approach used by the financial planner trying to lure your client away from you.