Question #2.

50 marks

Time t=1 t=2 t=3

NOPAT 60 70 80

FCF 33 20 40

WACC =10%; g=2% (growth rate in perpetuity). Year 3 (t=3) is the beginning of PERP.

Required:

a.

14 marks

Use the FCF valuation model to compute the value of CORE (V) at t=0

b.

36 marks

Use the RI valuation model to compute the value of CORE (V) at t=0, assuming the initial value of NOA is (i) 400 (NOA @ t=0), (ii) 100 (NOA @ t=0)

V=?