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You are the CFO of Buyme Limited. Your company is considering an acquisition of Sellme Limited. As part of the analysis, you have collected the

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You are the CFO of Buyme Limited. Your company is considering an acquisition of Sellme Limited. As part of the analysis, you have collected the following information about Sellme: Current 2021 2022 2023 (5 millions) Income Statement: Sales 1,200.00 1,244.64 1,290.24 1,338.24 Cost of goods sold 756.00 783.84 813.12 842.88 Selling and admin. 120.00 124.32 129.12 133.92 Depreciation 180.00 186.72 193.44 200.64 EBIT 144.00 149.76 154.56 160.80 Interest Taxes 48.96 50.88 52.80 54.72 Net income 95.04 98.88 101.76 106.08 Balance sheet data: Net working capital Shareholders' equity 57.60 897.60 60.00 931.20 61.92 965.28 64.32 1,001.28 Cash flow data: Capital expenditure 217.92 225.60 234.24 (a) What are the projected free cash flows of Sellme Limited for each of the 4 years? (10 marks) (b) What is the estimated terminal value of Sellme Limited at the end of 2023 assuming a constant growth rate in free cash flows of 2% beyond 2023? Assume a cost of equity of 11%. (5 marks) (c) Based on the projected cash flows, what is the value of Sellme? Again, assume a cost of equity of 11%. For this part, ignore the estimated terminal value calculated in (b) and use the shareholders' equity at the of 2023 as the terminal value. (7 marks) (d) What fraction of Sellme's current value comes from growth opportunities and what fraction comes from existing assets? (3 marks) (b) KLD Co. has a debt-equity ratio of 1. Its weighted average cost of capital is 11%, and its cost of debt is 9%. The corporate tax is 35%. (i) What is KLD's cost of equity? (2 marks) (ii) What is KLD's unlevered cost of equity? (3 marks) KLD is increasing the proportion of debt in the firm (at the same cost) so that the new debt-equity ratio is 1.5. (iii) What is the new cost of equity? (3 marks) (iv) What is the weighted average cost of capital? (2 marks) (v) Explain why the cost of equity changes when the debt-equity ratio changes

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