Question 4 The table below contains information you have gathered on Andromeda Pic (figures in E millions). In addition, Andromeda is expected to maintain a constant cash dividend of 10 and a constant capital spending of 10, whereas its working capital is unchanged and is expected to remain as such. The company's sales are expected to grow at 10% for the first three years, after which they will grow at a constant rate of 4% indefinitely. Andromeda's gross profit margin is 40% and is expected to remain constant. The tax rate is 35% and the discount rate is 9%. Forecast Year 2 Year 3 Latest Year Year 1 Year 4 500.00 1 Sales 2 Cost of Goods Sold 3 Admin Expenses 4 Depreciation Expense 5 Interest Expense 20.00 20.00 20.00 20.00 20.00 20.00 20.00 20.00 20.00 20.00 40.00 40.00 40.00 40.00 40.00 6 Net Income 7 Free Cash Flow from Operations (6+ 5+4) Free Cash Flow 7 + Capital Expenditure) 8 a. Complete the table with the missing information (use the answer booklet). (30 Marks) b. Calculate the intrinsic value of the company at time 0 based on its Free Cash (70 Marks) Flows Question 4: Total 100 Marks] Question 5 Bond A has a face value of $1,000, pays annual coupons at a rate of 996, has a yield to maturity of 4%, and 7 years to maturity. You are required to a. Calculate the price of bond A. (30 Marks) b. Calculate the bond A's duration. Assuming bond B has a duration of 7, which one is more affected by changes in interest rates and why? Your analysis should be based on the concept of duration (30 Marks) c. Given the duration of bond A, what will happen to the price of the bond if the yield increases from 4% to 6%? (40 Marks) Question 5: Total 100 Marks] END OF EXAMINATION PAPER Page 6 of6