P$6\mathrm{.}8$ Growth Rates and Continuing Value$-$Ed Kaplan, Inc.: A young analyst is valuing Ed Kaplan, Inc. as of the end of Year $0.$ The forecast drivers underpinning the financial statement and free cash flow forecasts for four years appear in Exhibit P$6\mathrm{.}2,$ and the resulting income statement, balance sheet, and free cash flow forecasts for three years appear in Exhibits P$6\mathrm{.}3$ and P$6\mathrm{.}4.$ The company's unlevered cost of capital is $13\%$ and interest tax shields are valued using the unlevered cost of capital. The company's revenue growth rate is expected to equal $3\%$ in perpetuity beginning in Year $4.$ The company intends to increase the amount of debt outstanding every year beginning at the end of Year $4$ by $3\%.$ To measure the company's continuing value at the end of Year $3,$ the analyst assumed the Year $3$ free cash flow grew at $3\%$ in Year $4$ and then continued at that growth rate in perpetuity. The analyst calculated the company's continuing value at the end year $3(C{V}_3)$ using the following formula:

$C{V}_3=\frac{FC{F}_3(1+g)}{r_{UA}-g}+\frac{IT{S}_3}{r_{UA}}$

$C{V}_3=\frac{\text{\$}852\mathrm{.}5(1\mathrm{.}03)}{0\mathrm{.}13-0\mathrm{.}03}+\frac{\text{\$}320\mathrm{.}0}{0\mathrm{.}13}=$$$8,780\mathrm{.}75+$$$2,461\mathrm{.}5=$$$11,242\mathrm{.}3$

a$.$ Identify the errors the analyst made in the continuing value calculation.

b$.$ Forecast the company's unlevered free cash flow in Year $4$ using the information in the exhibits for this problem.

c$.$ Discuss the difference between the Year $4$ growth rates for revenue and the unlevered free cash flow.

d$.$ Calculate the correct value of the firm as of the end of Year $0$ and the continuing value of the firm as of the end of Year $3$ using the perpetuity valuation.

e$.$ Forecast the company's equity free cash flow in Year $4$ using the information in the exhibits for this problem.

f$.$ Calculate the correct value of the equity as of the end of Year $0$ and the continuing value of the equity as of the end of Year $3$ using the perpetuity valuation.