Question 3

Hier Mobile Ltd. has acquired the licence to manufacture mobile phones from the Sagem catalogue. The new phones will have some modern features that did not exist when the original phones were made but it will NOT have Smartphone capability. The phone has been designed to attract the first generation mobile phone users and is expected to be 90% cheaper than an IPhone. The company expects to generate 3,000,000 of free cash flow, that is expected grow at 30% a year for 3 years and 1.5% thereafter. The companys cost of capital is 12%.

1. What is the value of Hier Mobile Ltd.?

(22 marks)

2. Outline the risks for potential investors in Hier Mobile Ltd.

(8 marks)