Question 2 (13 Marks)

You are a Junior Equity Analysts at HighReturns Investment and assigned to perform cash flow-based valuation for Gemini Group. Cash flow from operation and cash investment figures for 2021; $951 and $425 (in millions) respectively, have already been forecasted. In addition, you are provided with the following information:

All Ordinaries Index return 8%

3-Months Treasury bill rate 2.35%

Beta of Gemini Group 1.2

Cost of capital ?

ROE 12%

Dividend payout ratio 35%

*Operating cash flow growth 2022-2026 ?

Cash investment growth 2022-2026 3.45%

Firm growth beyond 2026 4.50%

Number of shares (in millions) 522

*Operating cash flow growth is assumed to be equal to sustainable growth rate of the firm. Gemini Group is a family-owned business and has no debt currently. Also, it is assumed above market-based data remains fairly stable and be applicable for calculation purposes during the period.

You are required to calculate following for Gemini Group:

1. Forecast free cash flow from 2022-2026 (15*0.25 =3.75 marks)
2. The enterprise value. (12*0.25+2+1+1+0.25 = 7.25 marks)
3. Equity value. (1 mark)
4. Equity value per share. (1 mark)