Question 41 (15 points) Lambda Inc., which is a manufacturing firm, reported EBIT of $3000 million. It also reported depreciation of $600 million and capital spending of $1.5 billion, working capital requirements are $120 million. The firm has $6 billion in debt outstanding, currently trading at par, rated AA with a yield to maturity of 9%. The beta of the stock is 1.30, and there are 400 million shares outstanding trading at $60 per share, with a book value of $7 billion. The Treasury bond rate is 5%, the market risk premium is 7% and the corporate tax rate is 30%. a. Estimate the current free cash flow to the firm. [2 marks] b. What is the expected growth of operating income? [2 marks] c. What is the cost of capital of Lambda Inc.? [3 marks] d. Estimate the value of Lambda Inc. [2 marks] e. Estimate the value of equity of Lambda Inc. [2 marks] f. Based on your estimation, what is the value of equity on a per share basis? Is Lambda Inc. correctly priced by the market? State an example of trading strategy you can use to take advantage of any current market mispricing. [4 marks]