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Slide, it pays no dividends, and all earnings are relnvested. The required return on equity is 10%. Forecasted earnings in years 1 through 5 are equal to ROE times beginning book value. Calculate the intrinsic value of the company using a residual income model, assuming that after five years, RI stays at 0.44 forever. QUESTION 5 (7 Marks) Mazonga Corp (MC) is a tech compamy, They cater to hospitals mainly. The company has been in existence for past 20 years. Management however feels after the next 15 years, they may shut shop. When they started they had invested $15 millon. Over the past 2 decades, they have grown steadfast. For the next 15 years, they want to focus only on hospitals In York Roglon. They require $5.5 million to keep the business golng. Based on referrals, they are reasonably confident to receive $1 million post tax each year. Cost of equity in this business is pretty high at 18%. Mazonga's CFO runs the financial forecasts and she mentioned she can raise $3 million at 8% net of floatation costs through Scotia Bank. Floatation Cost for debt is 2% and equity is 3%. MC Is In the higher tax bracket of 45%. a) What is the NPV for the project (3 marks) b) of Government were to help MC also $3 million at 5.4% with zero floatation costs, what would the APV bo? (4 maris) af 12 2600 words English (United Kingdom) Focus 22 otv O A w Slide, it pays no dividends, and all earnings are relnvested. The required return on equity is 10%. Forecasted earnings in years 1 through 5 are equal to ROE times beginning book value. Calculate the intrinsic value of the company using a residual income model, assuming that after five years, RI stays at 0.44 forever. QUESTION 5 (7 Marks) Mazonga Corp (MC) is a tech compamy, They cater to hospitals mainly. The company has been in existence for past 20 years. Management however feels after the next 15 years, they may shut shop. When they started they had invested $15 millon. Over the past 2 decades, they have grown steadfast. For the next 15 years, they want to focus only on hospitals In York Roglon. They require $5.5 million to keep the business golng. Based on referrals, they are reasonably confident to receive $1 million post tax each year. Cost of equity in this business is pretty high at 18%. Mazonga's CFO runs the financial forecasts and she mentioned she can raise $3 million at 8% net of floatation costs through Scotia Bank. Floatation Cost for debt is 2% and equity is 3%. MC Is In the higher tax bracket of 45%. a) What is the NPV for the project (3 marks) b) of Government were to help MC also $3 million at 5.4% with zero floatation costs, what would the APV bo? (4 maris) af 12 2600 words English (United Kingdom) Focus 22 otv O A w

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