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Case study 1 (Session Part a. You are an investment adviser. One of your clients approaches you for your advice on investing in equity shares of Theta Company. You have collected the following data: Earnings per share last year $6.00 Payout ratio 0.40 Return on equity 0.30 Cost of equity capital 0.20 The company plans to increase the payout ratio to 60% from year 5. Required: i) Estimate the price of an equity share of this company using the two-period dividend discount model and advise your client whether they should buy a share of the company. ii) Your client is keen to know whether there are any positive growth opportunities from their investment. Explain to your client the meaning of this concept using appropriate calculations. iii) If there are positive or negative growth opportunities, explain the reason for such opponunities. l7+2+1 =20 marks Part D. You are a senior nancial analyst of a rm based in Sydney. You have been assigned with the task of training interns who recently joined your firm on how to use the free cash flow model to estimate the value of a company. You have collected data on the following data: mmm mm\" 20 000 40 000 m- 37000 41000 45 00 _ . 0.00 WACC - . 0.13 0.12 Number of eui shares Million m m Terminal 1 wth rate Using the information you have collected above, perform calculations to explain to interns as to how the following are calculated: i. Free cash ow to rm ii. Free cash to equity iii. Value of the rm according to the free cash ow to rm method iv. Value of the rm according to the free cash ow to equity method v. Estimated price of an equity share according to the free cash ow to rm method and the free cash ow to equity method Note: For parts i and ii prepare a table showing how free cash ow to rm and free cash ow to equity are calculated. Follow the example in the lecture notes for session 7. 6+6+8+8+4 =32 marks