Handle the following for me with correct Explanation.

Estimating Hugo Boss's Equity Value Hugo Boss AG is a German designer, manufacturer, and distributer of men's and women's clothing, operating in the higher end of the clothing retail industry. During the period of 2004-2017, the company consistently earned returns on equity in excess of 20 percent, with peaks around 50 to 60 percent, grew its book value of equity (before special dividends) by 5 percent per year, on average, and paid out 65-80 pecent of its profit as dividends. On March 29, 2018, before the publication of the first-quarter results, when Hugo Boss's 69 million common shares trade at about 671 per share, an analyst produces the following forecasts for Hugo Boss. Income Statement (6 millions) 2018E 2019E 2020E Revenue 2,800 2,925 3,100 Profit before Interest and Tax 345 380 420 Interest Expense 10 5 Profit before Tax 335 375 415 Tax Expense 100 110 Profit/Loss 245 275 305 Balance Sheet 2017R 2018E 2019E 2020E NOA 1,160 1,195 1,250 1,325 Investment Assets 55 60 60 65 Business Assets 1,215 1,255 1,310 1,390 Shareholder's Equity 915 970 1,040 1.130 Current and Non-current Debt 300 285 270 260 Investment Capital 1,215 1,255 1,310 1,390 Assume that Hugo Boss's cost of equity is 10 percent. 1. Calculate the free cash flow to equity, abnormal profits, and abnormal profit growth for years 2018- 2020. 2. Assume that 2021 Hugo Boss AG liquidates all its assets at their book values, uses the proceeds to pay off debt, and pays out the remainder to its equity holders. What does this assumption imply about company's: . Free cash flow to equity holders in 2021 and beyond? . Abnormal profits in 2021 and beyond? . Abnormal profit growth in 2021 and beyond? 3. Estimate the value of Hugo Boss's equity on March 29, 2018 using the above forecasts and assump- tions. Check that the discounted cash flow model, the abnormal earnings model and the abnormal earnings growth model yield the same outcome.Smarts Inc. is a leader in developing AI based solutions for businesses. It is currently evaluating the opportunity to develop a software system that would utilize both blockchain and AI technologies simultaneously. The initial investment required to develop this software is $5 million and the software will be ready in one year's time. If the software system performs well (and results in high demand from businesses), Smarts anticipates that it will generate net cash ows of $2 million per year (starting one year from now) over the next ten years. However, if the system's performance only leads to low demand from customers, it will generate net cash ows of $500,000 per year over the next ten years. Due to the novel nature of the software, the likelihood of demand being high is only 30% and the appropriate cost of capital for Smarts is 10% per annum. The NT government is keen for Smarts' development team to be based in Darwin as it would like to promote Darwin (and NT) as an IT and software hub. It is therefore offering the company the ability to exit the operation at the end of the rst year the government will buy the entire project (code, computers etc.) for $3 million. a) Draw the decision tree relating to this project. b) Calculate the net present value for the project with the option to exit. If Smarts took the project, would it exercise the option after the commencement of the project? Why or why not? Show all workings. c) Using the approach discussed in the lecture, calculate the value of the real option that is being offered by the NT govemment? Show all workings. (1) Suppose that everything in the above example remains the same except that the NT government is offering to buy the entire project for $2 million at the end of the first year. What is the value now of the option to exit the project at the end of the rst year? Explain this result from the viewpoint of the drivers of option values. You are researching two mutual funds, LOW and HIGH. You estimate expected returns for the up- coming year to be 3% for LOW and 21% for HIGH. LOW fund invests only in government bonds (risk-free) which it holds to maturity, meaning that LOW's return for the up-coming year is known in advance. HIGH invests in risky securities that give it=s returns a standard deviation of 64%. To better gauge HIGH's risk, you ran the CAPM regression on some recent historical data: {LuzFf = 0+5ImFII+E which generated the following results: Regression Statistics R Square 0.263 Observations 120 Coefcient tStot Intercept ??? 0.775 (rm rf) 2.050 4.235 You estimate the expected return on the market portfolio to be 11% with standard deviation of 16%. a) Does the HIGH fund lie above! on, or below the Security Market Line? If off, by how much? b) Is HIGH over, under, or fairly-priced according to the CAPM