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Description Stanzer Inc is a US based telecommunications company listed on the NYSE. The company is considering the purchase of Basser Ltd, an unlisted company in Canada that has developed, patented and marketed a secure, medium range, wireless link to broadband. The wireless link is expected to increase Basser's revenue by 25% per year for three years, and by 10% per year thereafter. Stanzer uses a required rate of return of 13% when considering new investments. Summarised financial data for Basser for the last two years are shown below Other information relating to Basser 1. Non-cash expenses, including depreciation, were $820,000 in financial year ending (FYE) 20X6. This is expected to grow at the same rate as revenue. 2. Corporate taxation is at the rate of 30% per year 3. Capital investment was $1 million in FYE 20X6 and is expected to grow at approximately the same rate as revenue. 4. Working capital, interest payments and non-cash expenses are expected to increase at the same rate as revenue. 5. The current liabilities in the balance sheet are financial, interest-bearing debt. The book value of its debt is the same as its market value 6. Operating profit is expected to be approximately 8% of revenue in FYE 20X7, and to remain at the same percentage in future years. 7. Dividends are expected to grow at the same rate as revenue. Information regarding the industry sector of Basser 1. The average PE ratio of listed companies of similar size to Basser is 30x 2. Average earnings growth in the industry is 6% per year Required: (a) Estimate the equity value of Basser Ltd using: (i) Free cash flow to the firm (FCFF) valuation (ii) PE ratios (iii) Dividend based valuation Recommend a range of values that Stanzer might bid for Basser. State clearly any assumptions that you make