Esprit de Corporation ( Esprit ) is a fashion brand listed in the Stock Exchange of Hong Kong. Esprit s consolidated cash flow statement for the year ended 30 June, 20 20 is reproduced below.

1a. What is the FCFE for ESPRIT for 20 20 ? ( 5 %)

1b. What is the FCFF for ESPRIT for 20 20 ? ( 5 %)

1c. What should be ESPRIT s shareholder s required rate of return under CAPM assuming

the USD and HKD yield curve are of the same shape (5%)?

1d. Assuming a perpetual annual growth rate of 2 % for ESPRIT s FCF F , what would be the

target price for ESPRIT s share (in HKD) given a WACC of 3.8% in 2021 ? Assuming the

liabilities a re recorded at fair-value in Exhibit 4 ( 10 %)

1e. If the profit for Esprit in 2021 is HKD 321 million, w hat is the Residual Income for

ESPRIT in 20 21 (5%)

1f.

ESPRIT announced zero dividend in 20 21 . Assuming ESPRIT maintains the same payout

ratio and ROE in the coming 3 years and after that, the residual income will

demonstrate a persistent factor of 0.95. W hat would be the target price for ESPRIT s

share (in HKD) in 2022(Now) under residual income model ? (10%)

1g.

Instead of using the persistent factor as stipulated in 1 f. , what would be the fair value

of ESPRIT shares assuming after 3 years of constant ROE and payout ratio after 2021 ,

the shares of ESPRIT will be traded at a Price to Book ratio of 1.4 x. ( 10 %)

Exhibit 1 Consolidated Statement of Cash Flows Exhibit 2: Risk free rate reference Hong Kong 5-year Exchange \begin{tabular}{|l|l|} \hline fund note & \\ \hline 5-year US Treasury & 2.63% \\ \hline 10-year US Treasury & 2.69% \\ \hline Fed fund rate & 0.73% \\ \hline \end{tabular} Exhibit 3: Capital Market Information [? ESPRIT Beta: 1.07 [?] Share outstanding: 2831 million (3) Implied market risk premium for Hang Seng Index: 7.99%n a (?) Corporate tax rate applicable to ESPRIT is 15%. Exhibit 4: ESPRIT's Consolidated Balance Sheet in 2020 Exhibit 1 Consolidated Statement of Cash Flows Exhibit 2: Risk free rate reference Hong Kong 5-year Exchange \begin{tabular}{|l|l|} \hline fund note & \\ \hline 5-year US Treasury & 2.63% \\ \hline 10-year US Treasury & 2.69% \\ \hline Fed fund rate & 0.73% \\ \hline \end{tabular} Exhibit 3: Capital Market Information [? ESPRIT Beta: 1.07 [?] Share outstanding: 2831 million (3) Implied market risk premium for Hang Seng Index: 7.99%n a (?) Corporate tax rate applicable to ESPRIT is 15%. Exhibit 4: ESPRIT's Consolidated Balance Sheet in 2020