Please upload an Excel sheet to answer the Valuation question.Please keep your Excel sheet as organized as possible. Use formulas, list related data and assumptions in a separate worksheet, and reference those data and assumptions in the DCF valuation sheet.

Boston-based Precision Analytics M&A team was asked to estimate the value of Portal Inc., a UK technology firm, as of today (T=0). The team gathered the following information about Portal's operating performance to conduct its valuation:

• The sales for the year just ended (T=0) were GBP 750 million. Sales in the years ahead (T=1 through 5) are expected to grow at a rate of 5 percent per year for the next five years and then at 3 percent per year to perpetuity.
• The operating expenses, excluding depreciation, are expected to be 85% percent in year 1 and expected to decline at a rate of 1 percent per year until they stabilize at 80 percent.
• The working capital requirement to sales ratio will remain at its current level of 18 percent; capital expenditures are expected to be GBP50 million in the coming year and grow at the same rate as the sales
• Annual depreciation expenses for the forthcoming year will be 50 million GBP and then grow at the same rate as capital expenditures.
• Spot exchange rate at the time is USD1.30 per GBP (or GBP/USD1.30)

The team also gathered the following market data:

	UK (GBP)	US (USD)
Risk-Free Rate	3.5%	2%
EMPR	6%	6%
Beta	1.2	1.16
(Pre-Tax) Cost of Debt	6%	4.5%
Credit spread	2.5%	2.5%

Portal Inc. has GBP 500 million of debt outstanding. Corporate tax rates are 20 percent in the UK and the US. Portal's beta measured in GBP terms is 1.2. The UK risk-free rate is 3.5%, and the EMRP in pound terms is 6%. The debt-to-total-capital ratio of Portal, at market value, is 50 percent.

PART A:

Using the discounted Free Cash Flows to Firm approach, provide an estimate of Portal's Enterprise Value in British Pounds (GBP). Given that 200 million undiluted shares are outstanding, what would be your indicative share price based on the intrinsic value of the equity (in GBP)? What would be the EV in USD at the spot rate of USD 1.30 per GBP in USD?

PART B

Suppose the consulting company that you hired provided the following exchange rate forecast for the next five years.

Year	1	2	3	4	5
Exchange Rate Forecast	1.2686	1.238	1.2081	1.1789	1.1504

Your consultants pointed to the disarray in British politics and suggested using a bond-based country risk premium of 130BP or 1.3%. Further research suggested that UK equity market volatility is roughly 1.2 times the bond market volatility, and Portal's exposure to UK country risk is the same as the average UK company.

Based on your consultations with the consultants and your in-house research, you expect the British Pound to depreciate by 1.5% per year against USD in the foreseeable future.

Using the information provided above, calculate the Portal's Enterprise Value in USD terms by converting the pound cash flows into USD at the forecasted exchange rates and discounting them at the USD cost of capital.

PART C

Compare your findings in parts A and B; briefly comment on the possible reasons behind the differences you observed.

PART D

Suppose the spot rate is USD 1.30 per GBP as of T=0, and the risk-free interest rates in the US and UK are 2% and 3.5%, respectively. Assuming a flat yield curve, Calculate the USD cost of capital, assuming that the International Fisher Effect holds. Then, convert GBP Free Cash Flows to Firm into USD using synthetic forward rates and recalculate the EV in USD. Verify that the USD EV you found by using FCFFs is equal to the USD EV obtained by converting the EV you estimated in part A at the current sport rate of USD 1.30 per GBP, i.e., EV(GBP) x Spot Rate = EV (USD).