Katie Mullan is attempting to value ExCellsior, a large pharma company with

significant research and development $($R&D$)$ expenses. To do so she has decided

to capitalize its R&D expenses. ExCellsior recently reported the following

selected year end $2019$ results and relevant R&D expenses $($in $ millions$)$:

Note: ExCellsior's net working capital balance was $$2,154$ in $2018.$

ExCellsior's pre$-$tax cost of debt is $7\mathrm{.}0\%$ and tax rate is $35\mathrm{.}0\%.$ The Company has

a beta of $1\mathrm{.}4.$ The risk free rate and market risk premium are expected to be

$2\mathrm{.}5\%$ and $6\mathrm{.}0\%,$ respectively.

$($i$)$ Calculate the adjustment to return on invested capital $($ROIC$)$ that results

from the reclassification of ExCellsior's R&D expenses. Comment on your

answer. State any assumptions.

$(9$ marks$)$

$($ii$)$ Calculate the adjustments to Capex, Depreciation, and Capital that result

from the reclassification of ExCellsior's R&D expenses.

$(9$ marks$)$

$($iii$)$ Estimate the firm value of ExCellsior using the stable growth free cash flow

$($FCF$)$ model. State any assumptions.

$(12$ marks$)$