Gamma Systems Manufacturing Corporation has reached its maturity stage, and its net sales are expected to grow at a 6 percent compound rate for the foreseeable future. Management believes that, as a mature venture, the appropriate equity discount rate for Gamma Systems is 18 percent.
A. Estimate the free cash flows available to the equity investors for 2011.
B. Estimate the value of Gamma Systems equity at the end of 2010 by applying the terminal value perpetuity equation that was presented in Chapter 9.
C. By applying the terminal value equation at the end of 2010, what are we assuming about thefuture?

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GAMMA SYSTEMS MANUFACTURING CORPORATION 2009 2010 Cash Accounts receivable Inventories S 50,000 200,000 450,000 700,000 400,000 1,100,000 S 40,000 260,000 500,000 800,000 500,000 1300,000 S 170,000 70,000 90,000 330,000 400,000 300,000 50,000 220,000 1300,000 Total current assets Fixed assets, net Total assets Accounts payable Accruals Bank loan Total current liabilities Long-term debt Common stock ($10 par) Capital surplus Retained earnings S 130,000 50,000 90,000 270,000 300,000 300,000 50,000 180,000 1,100,000 Total liabilities and equity 2009 2010 Net sales Cost of goods sold $1,400,000 780,000 620,000 130,000 150,000 40,000 300,000 45,000 255,000 102,000 153,000 $1,600,000 900,000 700,000 150,000 150,000 53,000 347,000 57,000 290,000 116,000 Gross profit Marketing General and administrative Depreciation EBIT Eamings before taxes Net income Interest Income taxes (40%)