Third Cup is considering purchasing Canadian Tea Inc. (CT}. Third Cup, a high-end food and beverage retailer, has been provided with the following information for Canadian Tea, for the next year. Expected values for CT next ye (3} EBIT 1440.000 Interest payments 744,000 Depreciation and amortization I 372.0001 Deferred taxes 186,000 Increase in net working capital 744,000 Net capital expenditures 558,000 Corporate tax rate 42% Third Cup has asked you to conduct the following analysis: a} Estimate Canadian Tea's free cash flow to equity for next year. (4 marks} Answer b} Estimate the total value of Canadian Tea's equity, as well as on a per-share basis. (5 marks) For purposes of this problem assume the following: (i) a constant annual growth rate of free cash flow of4.3% indenitely (ii) Canadian Tea has 650,000 shares outstanding (iii) the appropriate beta is 1.12 (iv) the expected market return is 9.8 percent (v) the risk-free rate is 3.5 percent. Answer