Question 1 (16 marks) Jade Ltd. is a publicly traded firm with the following businesses: Casino ($ million) Revenues (Sales) $400 EBITDA $80 EBIT (Adjusted for leases) $40 Net Income $20 Book value of equity $250 Book value & market value of debt (NOT $15 adjusted for leases) Present value of Leases $70 Cash Balance $0 Tobacco ($ million) $50 $43 $40 $10 $80 $150 $0 $0 a) Based on publicly traded companies in the casino and tobacco businesses, you have conducted the following regressions: Casino: EV/Sales = 0.9 +1.50 (Pre-tax operating margin) (Example: With a 5% pre-tax margin, EV/Sales = 0.90+1.500.05)=0.975) Tobacco: P/BV = 0.9 +3.50 (Return on Equity) where P/BV refers to market value of equity to book value of equity (Example: With a 10% ROE, P/BV = 0.90 +3.50(0.1)= 1.25) Jade Ltd has 70 million shares outstanding, estimate the value of equity per share. (You capitalized leases for all Casino firms in the regression) (10 marks) b) Assuming that the value of equity you computed in part (a) is a fair' value (i.e., equal to intrinsic value), estimate the cost of equity that was used to value the company. Assume that the firm is already in stable growth stage, with a constant growth rate of 7% a year in perpetuity. (Hint: Use intrinsic version of the relevant multiple) (6 marks)