Complete the question, using the excel file attached. Happy Go-Lucky Group Limited is a listed company on the Jamaica Stock Exchange which is seen as a potential target for acquisition by financial analysts. The value of the company has therefore been a matter of public debate. The following financial information is available: HAPPY GO-LUCKY GROUP LIMITED INCOME STATEMENT YEAR ENDED 31 DECEMBER In Millions of JMD except Per Share FY 2017 FY 2018 FY 2019 Revenue 44,444.2 48,280.9 55,057.9 Cost of Sales 32,594.6 35,418.9 40,823.0 Gross Profit 11,849.7 12,862.0 14,235.0 Operating Expenses 4,443.6 5,221.6 6,027.3 Depreciation 859.5 866.2 1,049.9 Operating Income (Loss) 6,546.6 6,774.3 7,157.7 Interest Expense 610.3 642.5 789.6 Interest Income 28.8 35.1 44.8 Profit before taxation 5,965.1 6,166.8 6,413.0 Taxation charge 623.6 641.3 639.2 Net Profit for the year 5,341.5 5,525.5 5,773.8 Basic EPS 1.67 1.73 1.80 Weighted average number of shares in issue 3,199.3 3,199.3 3,199.3 HAPPY GO-LUCKY GROUP LIMITED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER In Millions of JMD FY 2017 FY 2018 FY 2019 ASSETS Non -current Assets Goodwill 1,169.0 2,145.8 2,145.8 Property, Plant & Equipment (net) 15,062.3 17,186.1 19,106.7 Long term investments 3,867.2 3,128.0 3,025.1

20,098.6 22,459.9 24,277.5 Current Assets Inventories 5,164.3 5,783.5 6,684.9 Other assets 9,352.2 10,531.8 11,975.7 Accounts receivable 9,287.7 10,497.5 11,926.9 Cash & bank balances 2,004.6 3,116.0 3,730.7 25,808.8 29,928.8 34,318.2 Total Assets 45,907.3 52,388.7 58,595.8 EQUITY & LIABILITIES Equity Share Capital 599.6 599.6 599.6 Retained earnings 12,932.7 15,038.5 17,364.5 13,532.3 15,638.1 17,964.1 Non-Current Liabilities Notes payable 12,200.5 10,658.5 13,987.2 Bonds payable 10,295.2 11,360.7 9,438.8 22,495.7 22,019.2 23,426.0 Current Liabilities Accounts Payable 4,414.1 5,019.3 6,337.8 Current Portion of Notes payable 2,440.1 2,131.7 2,797.4 Other Short Term Liabilities 3,025.1 7,580.4 8,070.5 9,879.3 14,731.4 17,205.7 Total Liabilities & Equity 45,907.3 52,388.7 58,595.8 Forecasting Assumptions: 1. Revenues is expected to grow by the compound growth rate for revenues (to be computed) 2. Cost to sales to revenue ratio remains constant 3. Use the 2019 Accounts Receivable as a percentage of Revenues to grow accounts receivables for the next three years 4. Inventory is expected to grow by the sales growth factor 5. Use the 2019 Accounts Payable as a percentage of Cost of Sales to grow Accounts Payable for the next three years 6. Grow other assets & other short term liabilities by the compound growth rate for each item (to be computed) 7. Total assets is expected to grow by the compound growth rate for assets (to be computed) 8. Property plant & equipment as a percentage of total assets remains constant

9. Depreciation is charged at 7% per annum 10. Use the average before tax profit margin of 13.5% to forecast the profit before tax for the next three years 11. The effective tax rate for Happy-Go Lucky Limited is 21%. 12. The value and number of common stock will increase 20% during 2020 and should remain the same there after on account of an Additional Public Offering (APO). 13. The company paid dividend totalling $1,109.52 million to shareholders on the books at 31 December 2019. The dividend is expected to growth by 3% in 2020, 4% in 2021 and 5% in 2022, after which it is expected in tandem with the Jamaica Economy . Additional Information: 1. The shares of Happy Go-Lucky Group Limited is currently trading at $1.98 per share 2. The industry P/E for Happy Go-Lucky Group Limited in 1.33x 3. Current market return 15% 4. Risk free rate 8% 5. Equity beta 1.25 6. The Jamaica Economy is projected to growth by 3% in the medium to long term. You are required to: 1. Forecast the following line items for 2020 - 2022 based on the forecasting assumptions provided: a) Revenues b) Cost of Sales c) Accounts receivables d) Accounts payable e) Other current assets f) Other current liabilities g) Depreciation h) Total assets i) Property, plant & equipment j) Taxation charge k) Profit before tax and after tax l) Earnings per share m) Share Capital & weighted average number of shares in issue 2. Compute the required rate of return using CAPM 3. Compute the Free cash flow for 2020 - 2022

4. Compute the intrinsic value of Happy-Go Lucky Group Limited, using the: a) P/E Model b) Dividend Discount Model c) Discounted Cash Flow Model 5a. Make a recommendation as to whether Investors should: BUY, SELL or HOLD these stocks, give reasons for your answer. b. Discuss the problems in using the P/E Model to value the shares of a company.