The following information is extracted from the forecasted balance sheet and income statement of Good Ltd and Bad Ltd. As on 31 December 2020, market value of Good Ltds and Bad Ltds shares were $1.10 and $1.95 per share, respectively, with 1,000,000 shares outstanding in both the companies.

REQUIRED

(a) Calculate free cash flow for both the companies for the years 2021 to 2023. (3 marks)

(b) Calculate the equity value per share for both the companies. (5 marks)

(c) Assume your client holds both companies shares and wants to sell one of the companies shares. Based on your valuations in (b), which companys shares would you recommend for this client to sell? Why? (2 marks)

\begin{tabular}{lrrr|rrr} \hline & \multicolumn{3}{c|}{ Good Ltd } & \multicolumn{3}{|c}{ Bad Ltd } \\ \cline { 2 - 7 } Year & Net income & Change in book value of assets & Change in book value of debt & Net income & Change in book value of assets & Change in book value of debt \\ \hline 2021 & $450,000 & $20,000 & $1,000 & $700,000 & $6,000 & $0 \\ 2022 & 480,000 & 22,000 & 2,000 & 660,000 & 2,000 & 1,500 \\ 2023 & 500,000 & 5,000 & 0 & 650,000 & 8,000 & 7,500 \\ \hline \end{tabular}