Question 1 - 10 marks (Investment Bank and Value Creation) 1A. Smooth Inc. currently reports a Net Operating Profit or Loss After Tax (NOPLAT) of USD 800 million, which is expected to grow by 8%. Return on Invested Capital (ROIC) is 18% and the company's Weighted Average Cost of Capital (WACC) is 189%. The company is considering the following strategic alternatives: Alternative 1: "Return Focus" - Prioritize to increase return (ROIC) to 24% while allowing NOPLAT growth rate (g) to slow down to 6%. Alternative 2: "Growth Focus" - Prioritize to increase NOPLAT growth rate (g) to 10% while allowing ROIC to fall to 16%. Alternative 3: "Turbo-Growth" - Prioritize to increase NOPLAT growth rate (g) to 12% while allowing ROIC to fall further to 149% Its current financial figures and the projected results of these strategic options are summarized in the table below. Smooth Inc. NOPLAT Growth (USD million) Rate (8) ROIC IR WACC FCF Value Current Status 896 18% 18%% Return Focus 800 596 24% 186 Growth Focus 800 10% 18%6 Turbo-Growth 800 12% 14%% 18% Formula 1: IR =g/ ROIC Formula 4: FCF = NOPLAT x (1 - g/ ROIC] Formula 5: Value = NOPLAT x (1 - 5/ ROIC) / (WACC - E) i. Compute the Investment Rate (IR), Free Cash Flow (FCF) and, assuming these figures will continue in perpetuity, valuation of Steady Co. (currently and under each of the Strategic Alternatives). (1A-i. 4 marks) ii. Recommend one of the 3 Strategic Alternatives above that Smooth Inc. should take and explain why this should be chosen over the other alternatives. (1A-ii. 2 marks)