Question Four Answer all parts Show all your workings O'Flannagan, CFA, is attempting to value AltoXenica, a pharma company with significant research and development (R&D) expenses. To do so she has decided to capitalize its R&D expenses for the past 9 years (in $ millions). Year R&D 2020 3,955 2019 3,891 2018 3,864 2017 3,914 2016 3,847 2015 3,818 2014 3,752 2013 3,726 2012 3,663 AltoXenica recently reported the following results for 2020 (in $ millions): EBIT 7,246 Interest expense 628 Depreciation 7,166 Net working capital 1,580 Book value of equity 19,773 Book value of debt 13,956 Capex 8,561 Note: AltoXenica's net working capital balance was $1,444 in 2019. AltoXenica's tax rate is 35.0%. The Company has a beta of 1.25 and the risk-free rate and market risk premium are expected to be 2.0% and 5.0%, respectively. (i) Estimate the firm value of AltoXenica using the stable growth free cash flow (FCF) model. State any assumptions. (15 marks) (ii) Discuss the validity of the reclassification of R&D as performed by O'Flannagan. Your answer should also comment (with worked examples where appropriate) on the impact of the reclassification on both valuation and performance measures for AltoXenica. (15 marks)