Question $4($Total $38$ points$)$ a$)$ You are provided with the following table for assumptions of Omega Inc.$\text{'}$s financial forecast and valuation. Assumptions for financial forecast and valuation of Omega Inc$\mathrm{.}2016$ and afterOther op expense $($including depre. exp$)(\backslash \%$ of revenue$)(18$ points$)$ Given the forecast assumptions above, complete the valuation workspace below to forecast Omega Inc.$\text{'}$s FCFF in $2013-16.($Note: Use information and answers in questions $2$ and $3$ to calculate relevant figures for $2012.)\backslash ((-)\backslash )$ Capital expenditure, net of depr. expense b$)$ You notice that in order to calculate the enterprise value of Omega Inc., you need to estimate Omega's WACC. You want to start from the estimation of Omega's cost of equity. As Omega is a company in an emerging market, you have decided to first calculate Omega's cost of equity in USD, and then Omega's cost of equity in Indian Rupee. You use the following model to estimate Omega's cost of equity in USD:

Omega's cost of equity $($in USD$)$

$\backslash (=\backslash )$ US risk$-$free rate $+$ Omega's beta$*$US market risk premium $+$ India's risk premium

India's risk premium is calculated using the "Default spread $*$ Relative standard deviations" approach discussed in class. You have the following information about current US Treasury markets:

i$)(4$ points$)$ For your estimation of Omega's cost of equity, select the US risk$-$free interest rate and estimate the US inflation rate. Explain your choice and calculation carefully.

ii$)(4$ points$)$ Discuss an advantage and a limitation of estimating market risk premium using historical data. iii$)(3$ points$)$ Suppose the US market risk premium is $\backslash (4\mathrm{.}63\backslash \%\backslash ),$ Omega's beta is $1\mathrm{.}2,$ the standard deviation in the Indian equity market is $\backslash (35\backslash \%\backslash ),$ the standard deviation in the Indian's bond is $\backslash (15\backslash \%\backslash ),$ and India's sovereign CDS spread is $150$ basis points. Calculate Omega's cost of equity $($in USD$).$

iv$)(3$ points$)$ Suppose India's long$-$term inflation rate is $4\mathrm{.}0\backslash \%$ per annum. Calculate Omega' cost of equity in Indian Rupee.

c$)(6$ points$)$ Suppose you are at the beginning of $2013.$ Omega's WACC is estimated to be $\backslash (12\mathrm{.}5\backslash \%\backslash ).$ Given your FCFF forecast in part $($a$),$ calculate the equity value of Omega Inc. by completing the workspace below.