QUESTION THREE The Kenyan economy recorded a positive growth in the last quarter of 2015 and this is expected to continue, increasing companies' appetite for expansion. Buru enterprises is a company operating in Kenya and has chosen acquisition as a way of expanding. The company has identified Umoja Ltd. as a target company. As a student of corporate valuation, you have been tasked with responsibility of advising Buru enterprises on whether they should proceed with the acquisition agenda. You have projected the financial statements of Umoja Limited and estimated its cash flows. Amounts are in thousand of Kenya shillings. Year Free cash flow to firm Outstanding debt Annual capital expenditure 2015 2016 2017 2018 2019 2020 (current) 7,000 7,450 8,150 8,550 9,500 52,500 50,000 47,500 45,000 42,500 40,000 11,800 12,000 12,500 12,500 12,700 12,700 Annual working capital investment 11,500 11,000 11,500 11,000 11,500 12,300 The current expected.returh on the NSE-20 share index is 12 percent, and the long term Treasury bond rate is 6 percent. Umoja's Ltd's debt pays 8% (effective) interest, and its stock levered beta is 1.5. Assume corporate tax rate of 30% for both companies. Umoja Ltd's debt principal is repaid in equal installments at the end of each financial period. Buru enterprise intention is to raise finances such that it achieves its target long term debt-to equity ratio for the target company of 40 percent and it intends to assume the current long-term debt equity rate of the target company Page 2 of 3