Assume that you have been asked to estimate the free cash flow to the firm this year for an American firm, Hamota Holdings, and have collected the following information. The firm reported earnings before interest, taxes, depreciation and amortization of $350 million on its revenues of $ 1600 million. Depreciation and amortization charges amounted to $ 100 million and capital expenditures were $ 200 million. Hamota spent $ 100 million this year on research and development in its software division, following R&D expenditures of $ 60 million (3 years ago), $ 75 million (2 years ago) and $ 90 million (1 year ago) in the prior three years. You believe that research expenditures have an amortizable life of 3 years. The working capital items for the last year and the previous year are reported below. Current Assets Cash Current Liabilities Current Year $ 330 million $ 100 million $ 280 million $ 150 million Last Year $ 270 million $ 80 million $ 240 million $ 130 million Bank Overdraft The tax rate for the firm is 40%. a. Estimate the value of the research asset of the firm. b. Estimate the operating income adjusted for R&D expenditures. c. Estimate the free cash flows to the firm last year. (20 marks) (20 marks) (20 marks) (2) a. Discuss reasons why firms do not pay out their free cash flows to equity (FCFE) as dividends? (20 marks) b. Suppose you are valuing a company in the UK. Would you include cash in your definition of working capital in order to compute cash flows? Explain your answer.