$($c$)$ The averuge riturn Cemanued $b$; all iavestors of smart solutions in estinated at $12$

percant for the first $15$ years and $8\%$ from year $16$ thereafter.

Requir$-$d:

$($i$)$ Calculate the free cash flow for period $O.$

$($ii$)$ Calculaie the free cash flow for year $1.$

$($iii$)$ Calculate free cash flow for year $15$ and $16.$

$($iv$)$ Compute terminal value.

$($v$)$ Compute the discounted value of smart solutions. As a student of corporate valuation, you have been given the task of estimating the

fundamental value of smart solutions. The following data is provided for the most recent

pcriod.

Additional Information

$($s$)$ The company expects tumover, working capital investment and EBIT. to increase

each year an annual rate of $8$ percent for $15$ years and. $3$ per cent each year thereafter

forever.

$($B$)$ Depreciation and amortization and the capital expenditure are expected to increase

each year for $15$ years at an annual rate of $8\%,$ and to offset each other at the steady

state.As a student of corporate valuation, you have been given the task of estimating the fundamental value of smart solutions. The following data is provided for the most recent pcriod.

Year $2014($Year o$)$ Sh'Million

Working capital investment

$30$

Depreciation and Ammortization

$50$

Cash and cash equivalents

$10$

Effective tax rate $(25\%)$

Capital expenditure

$150$

Operating Earning Before interest & Tax $($EBIT$)$

$300$

Additional Information

$($a$)$ The company expects turnover, working capital investment and EBIT, to increase each year an annual rate of $8$ percent for $15$ years and. $3$ per cent each year thereafter forever.

$($b$)$ Depreciation and amortization and the capital expenditure are expected to increase each year for $15$ years at an annual rate of $8\%,$ and to offset each other at the steady state.

$($c$)$ The average return demanded by all investors of smart solutions in estimated at $12$ percent for the first $15$ years and $8\%$ from year $16$ thereafter.

Required:

$($i$)$ Calculate the free cash flow for period O$.$

$(3$ Marks$)$

$($ii$)$ Calculate the free cash flow for year $1.$

$(3$ Marks$)$

$($iii$)$ Calculate free cash flow for year $15$ and $16.$

$(7$ Marks$)$

$($iv$)$ Compute terminal value.

$(5$ Marks$)$

$($v$)$ Compute the discounted value of smart solutions.

$(7$ Marks$)$