1. Calculate the weighted average cost of capital (WACC) for Starliner Ltd, Calculate the value of the firm And Calculate the total market value of equity.
2. Determine the value per share for Starliner Ltd indicating whether the stock is underpriced, fairly priced or overpriced. Also , Briefly explain why Free Cash Flow approach is more preferable and widely used compared to Dividend Valuation Model approach in stock valuation.

QUESTION 1 (30 MARKSI Starliner Ltd currently sells for $12.80 per share. You are required to value the company in an attempt to determine whether Starliner is fairly priced. A research analyst has assembled the following information: . The required return on the stock will be estimated using Capital Asset Pricing Model with risk free rate of 3.40%, return on market of 13.17% and stock beta of 0.8803. The before-tax required rates of return on Starliner Ltd debt is 6.0 percent and required return on preferred stock is 7.5 percent. The company's current capital structure consists of 20 percent debt, 10 percent preferred stock, and 70 percent common stock. The market value of the company's debt is $160 million, and its preferred stock is valued at $200 million. Starliner Ltd's Free Cash Flow to Firm (FCFF) for the year just ended is $185 million. FCFF is expected to grow at a constant rate of 5 percent for the foreseeable future. The tax rate is 25 percent. Starliner Ltd has 250 million outstanding common shares. . Required: FORMULA: FCFF = CFO + Interest Expense (1 Tax rate) - Investmemt in Fixed Capital; or FCFF = EBIT (1 Tax rate) - Net Capital Expenditure - Change in Working capital FCFE = FCFF - Interest Expense (1 Tax rate) + Net Borrowing Value of Firm = FCFF1 / (WACC - g) Po=D1 ks - g) g= ROE x (1 DPS/EPS) Por EPS. (1 +g) x Average P/E multiples PEG ratio = P/E ratio / g in % Ke or Rs = RF + B (Rm - RF) WACC = WdKd (1 Tax rate) + Weke =