INV3701 Assignment 1 (COMPLETE ANSWERS) Semester 2 2025 - DUE 4 September 2025 ; 100% correct solutions and explanations.

INV3701 Assignment 1 (COMPLETE ANSWERS) Semester 2 2025 - DUE 4 September 2025 ; 100% correct solutions and explanations. QUESTION 1 [10 MARKS] An analyst has been asked to value telecommunication companies, Fluid 5G Networks Ltd and Enterprise 5G Networks Ltd. The telecommunications industry is a mature industry with few competitors. One segment that is growing is 5G Networks; while the telecommunications sector is expected to grow at a steady rate of 5%, the 5G Networks segment is expected to grow at 10%. Fluid is the largest company in the 5G Networks segment. Fluid is considered a very stable company within the telecommunications sector and the 5G Networks segment. Fluid has an equity beta of 1.00. The current market price of Fluid’s share is R14.85. The analyst collects selected financial information from Fluid’s income statement and cash flow information (for the last fiscal year) and from Fluid’s balance sheet (for the last two fiscal year ends). The information is shown in Exhibit 1. There is no preferred share, and no longterm asset sales occurred in 2024. INV3701 ASSIGNMENT 1, SEMESTER 2, 2025 2 Exhibit 1: Selected Fluid Financial Information (R million except for rates and ratios) Income statement 2024 EBITDA R1 461 Operating income R1 169 Interest expense R150 Income tax rate 30% Dividends R357 Balance sheet Total current assets R2 408 R2 577 Net PPE R3 794 R4 150 Notes payable R600 R644 Long-term debt R2 020 R2 070 Total liabilities R3 210 R3 378 Total equity R2 992 R3 349 Other information 2024 Cash flow from operations (CFO) R1 020 Investment in fixed capital (FCInv) R500 Risk-free rate 3.00% Cost of debt 6.00% Cost of equity 8.00% Target D/E ratio 1.00 Enterprise is the fifth largest company in the 5G Networks segment of the telecommunications sector. Enterprise is considered a growth company within the telecommunications sector and the 5G Networks segment. Enterprise has not