An analyst has provided you with the following actual financial information developed from the reformulated financial statements of Revelstoke Inc. for the year 2020, and then a set of forecasted financial information for the two-year period, 2021 2022:

2020 Actual: Sales = $750,000

Financial leverage (FLEV) = 3.50

Net Financial Obligations (NFO) = $350,000

2021 E 2022 E

Sales growth 10% 5%

Operating Profit Margin (after tax) 0.05 0.05

Financial Leverage (FLEV) 3.25 3.00

Net Financial Obligations (NFO) $350,000 $350,000

In conjunction, you have also been provided with the following additional information:

• the forecasted growth rate in comprehensive income after tax (CI) after 2022 is 2.5%
• Revelstoke has 100,000 common shares outstanding
• Revelstokes firms cost of equity capital is 8%
• Revelstokes net borrowing cost (NBC) after tax is 4.5%

While you agree with the analysts forecasts of future sales growth and operating profit margins, you believe that rather than decreasing its financial leverage (FLEV), Revelstoke will change its capital structure in 2021 so that its financial leverage ratio (FLEV) increases to 4.0, and then remains constant at 4.0 from 2021 into the future. This increase will result in net financial obligations (NFO) increasing to $425,000 in 2021 and $450,000 in 2022. As a result, you believe that the appropriate cost of equity capital will be 9.0% and the net borrowing cost will be 5% after tax because the firm will be more risky, and that its terminal growth rate will be 3% because its CI will grow more rapidly because of the benefits of the increased financial leverage.

Given this information, which of the following statements is TRUE?

	1.	Your estimate of the price of Revelstokes common shares will be the same as the analysts estimate
	2.	Your estimate of the price of Revelstokes common shares will be lower than the analysts estimate
	3.	Based on the information provided, it is not possible to estimate the price of Revelstokes common shares
	4.	Your estimate of the price of Revelstokes common shares will be higher than the analysts estimate