Question 1 - 7 marks (Investment Bank and Value Creation) 1A. Steady Co. currently reports a Net Operating Profit After Tax (NOPLAT) of USD500 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 15%. The company is considering the following strategic alternatives: Alternative 1: "Return Focus" - Prioritize to increase return (ROIC) to 21% while maintaining NOPLAT growth rate (g) at 8%. Alternative 2: "Growth Focus" - Prioritize to increase growth (g) to 12% so long as ROIC remains unchanged at 18%. Alternative 3: "Growth-at-all-cost" - Prioritize to increase growth (g) to 20% even if that means decrease in ROIC to 15%. Its current financial figures and the projected results of these strategic options are summarized in the table below. NOPLAT Growth (USD mil.) Rate (g) ROIC IR WACC FCF Value Steady Co 500 8% 18% 15% 1. Return Focus 500 8% 21% 15% 2. Growth Focus 500 12% 18% 15% 3. Growth-at-all-cost 500 20% 15% 15% Formula 1 IR = g / ROIC Formula 4 FCF = NOPLAT x (1 - g /ROIC) Formula 5 Value = NOPLAT (1 - g / ROIC) / (WACC - g) 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. 4 marks) 1B. Recommend one of the 3 Strategic Alternatives above that Steady Co. should take and explain why this should be chosen over the other alternatives. (1B. 3 marks)