You are valuing HIGHTECH, a young, high growth technology company and have

estimated the net income and cashflows to equity for the next $3$ years. The cost of

equity is assumed to be $12\%.$

a$.$ After year $3,$ you expect the firm to stay all equity funded with a cost of equity of

$12\%$ and anticipate the net income to grow $2\%$ a year in perpetuity. If you believe that

the firm cannot generate excess returns $($i$.$e$,$ will earn zero excess returns$)$ in perpetuity

with reinvestment rate $33\mathrm{.}33\%$ after year $3,$ estimate the terminal value of equity. $(4$

points$)$

b$.$ Given the expected cashflows and the terminal value of equity $($from part a$),$ estimate

the value of equity today. $(4$ points$)$

c$.$ In the valuation of HIGHTECH, what are the major assumptions in arriving the value

of equity today? $(4$ points$)$

$***$ Answer the questions please