Calculate the market value of equity as of $31\mathrm{.}12\mathrm{.}2022$ using the FCFF model. Question $3(50\%)$

Financial ratios and valuation.

The reformulated balance sheet and income statement for the firm Sol og Solair are as follows:

Sol og Solair

Reformulated income statement

You also know that the corporation tax rate is $20\%,$ the beta of equity is $0\mathrm{.}8,$ the market risk premium

is $4\%,$ the beta of debt $0\mathrm{.}4,$ and that the company will grow at a constant rate of $4\%$ from $2020$ on

$($included$).$ The risk$-$free rate is $2\mathrm{.}5\%.$ Assume that the market values of NIBD and equity are equal to

their book values.

a$.$ Calculate the FCFF$,$ FCFE, and cash surplus for the years $2020$ and $2021.$

b$.$ Show that the cash surplus you calculated in $($a$)$ equals the change in reported cash from the

balance sheet from $2019$ to $2020$ and from $2020$ to $2021.$

c$.$ Calculate the $($after tax$)$ ROIC, profit margin, and asset turnover rate for the years $2020$ and $2021.$

Use averages for balance sheet items.

d$.$ Why would you use averages for balance sheet items in $($c$)?$

e$.$ What are appropriate benchmarks for ROIC?

f$.$ Calculate the cost of equity.

g$.$ What does a beta of equity of $0\mathrm{.}8$ mean?

h$.$ Calculate the cost of debt.

i$.$ Calculate the WACC using $2021$ balance sheet information.

j$.$ Calculate the market value of equity as of $1\mathrm{.}1\mathrm{.}2022$ using the FCFF method.