(1) (a) Based on the Capital Asset Pricing Model, what is the appropriate weighted average cost of capital for TCBFs investment in the new project to make frozen food products? (b) Do a sensitivity analysis for WACC for the following cases:

i. Debt ratio of 0%

ii. Debt ratio of 10%

iii. Debt ratio of 50%

From now on you can assume that the weighted average cost of capital is 14%.

(2) (a) What are the forecasted free cash flows for the project through 2026? (b) What is the present value of these cash flows?

(3) On the assumption that the project lasts forever with the appropriate maintenance, what is the terminal value of the project if there is no real growth beyond 2026? What is the total value of the project?

(4) Conduct an alternate valuation of the project by using the market-to-book ratio of comparable firms.

Selected Capital Markets Data in December 2019

Interest Rate - Long Term AAA 5.2%

Interest Rate - Long Term AA 5.5%

Interest Rate - Long Term A 5.8%

Interest Rate - Long Term BBB 6.1%

Short Term T-Bills 4.8%

Long Term Government Bonds 5.0%

MRP 7.5%

TCBF, Inc. -- Income Statement and Balance Sheet ($000s) Exhibit 1 2014 2015 2016 2017 2018 2019 Income Statement Sales Cost of goods sold SG&A expense 20,218 11,360 1,007 22,437 14,982 1,424 32,090 18,173 1,332 34,192 19,614 2,571 44,098 31,013 3,176 71,436 38,399 3,944 Operating income Interest expense 7,851 548 6,031 667 12,586 749 12,008 744 9,910 975 29,092 756 Pretax income Taxes 7,304 2,556 5,365 1,878 11,836 4,143 11,264 3,942 8,935 3,127 28,336 9,918 4,747 3,487 Net income Dividends 7,694 1,526 7,322 1,796 5,808 2,087 18,418 5,985 Balance Sheet Cash Accounts receivable Inventories 526 1,233 4,533 269 1,750 7,446 675 1,989 6,114 1,025 2,085 12,111 1,323 2,840 9,899 1,364 4,352 14,537 6,292 9,465 8,778 15,221 14,062 20,253 Total current assets Net property, plant and equipment 17,292 19,025 25,844 28,459 29,931 39,762 Total assets 23,584 28,490 34,622 43,680 43,993 60,015 Accounts payable Notes payable Current portion of long-term debt 681 6,323 191 915 7,236 318 964 6,820 512 1,189 5,171 3,097 911 2,746 2,987 1,816 8,131 2,729 6,644 Total current liabilities Long-term debt Shareholders' equity 7,194 3,009 13,381 8,469 3,153 16,868 8,296 3,291 23,035 9,456 5,662 28,561 5,067 32,282 12,676 2,624 44,715 Total liabilities and equity 23,584 28,490 34,622 43,680 43,993 60,015 Exhibit 1- continued TCBF, Inc. -- Selected Market Based Data (5000s) 2014 18.13 2,967 1.60 End-of-year share price ($) Shares (000s) Earnings per share ($) Dividends per share ($) Price to earnings ratio Beta 2015 15.91 2,967 1.18 2016 27.75 2,967 2.59 0.51 10.70 2017 27.38 2,967 2.47 0.61 11.09 2018 33.30 2,967 1.96 0.70 17.01 2019 39.96 2,967 6.21 2.02 6.44 1.25 11.33 13.54 Exhibit 2 Selected Financial Data for Processed Food Producers Agro Blast 2019 43 7.9 Sales ($millions) Net Income (Smillions) Earnings per share Total Assets ($millions) Accounts Payable (Smillions) Notes Payable (Smillions) Long-Term Debt ($millions) Stockholder's Equity (Smillions) Shares Outstanding (Millions) Stock Price ($) Beta Bond rating $1.58 34 2.8 4.1 5.1 22 Flash Buds Green Thumbs 2019 2019 39 921 7.3 45 $3.66 $4.54 32.1 645 2.1 80 4.3 95 4.7 180 21 290 5 14 1.38 AA 1.99 31 1.41 AA 9.91 33 1.13 BBB Sales ($millions) Net Income (Smillions) Earnings per share Total Assets ($millions) Accounts Payable (Smillions) Notes Payable (Smillions) Long-Term Debt (Smillions) Stockholder's Equity (Smillions) Shares Outstanding (Millions) Stock Price ($) Beta Bond rating Healthy Grains 2019 2072 118 $4.57 1028 112 141 203 572 Macro Tastes 2019 1364 96 $5.29 903 97 123 195 488 Yummy Veggies 2019 4403 302 $2.93 2526 230 346 470 1480 25.82 39 0.97 A 18.15 35 0.74 A 103.07 24 1.14 A Exhibit 3 Frozen Food Business Proposal -- Pro Forma Income Statement and Asset Requirements Projections 2020-2026 ($000) 2020 2021 2022 20223 2024 2025 2026 Revenues 20,422 49,561 65,260 73,632 83,140 93,850 Cost of goods sold Operating Expenses Depreciation 17,844 2,246 587 40,639 5,452 554 53,513 6,199 534 60,378 6,995 525 68,175 7,898 527 76,957 8,915 538 Pretax operating profit (256) 2,915 5,013 5,733 6,540 7,439 Balance Sheet 317 Cash Accounts receivable Inventories 204 1,701 3,973 496 4,128 7,900 653 5,436 10,402 737 6,134 11,737 832 6,925 13,253 939 7,818 14,960 1,750 2,067 5,879 12,524 16,491 18,607 21,010 23,716 Total current assets Net property, plant and equipment Total assets 5,000 7,067 5,196 11,075 5,687 18,211 6,062 22,553 6,418 25,025 6,856 27,866 7,401 31,118 TCBF, Inc. -- Income Statement and Balance Sheet ($000s) Exhibit 1 2014 2015 2016 2017 2018 2019 Income Statement Sales Cost of goods sold SG&A expense 20,218 11,360 1,007 22,437 14,982 1,424 32,090 18,173 1,332 34,192 19,614 2,571 44,098 31,013 3,176 71,436 38,399 3,944 Operating income Interest expense 7,851 548 6,031 667 12,586 749 12,008 744 9,910 975 29,092 756 Pretax income Taxes 7,304 2,556 5,365 1,878 11,836 4,143 11,264 3,942 8,935 3,127 28,336 9,918 4,747 3,487 Net income Dividends 7,694 1,526 7,322 1,796 5,808 2,087 18,418 5,985 Balance Sheet Cash Accounts receivable Inventories 526 1,233 4,533 269 1,750 7,446 675 1,989 6,114 1,025 2,085 12,111 1,323 2,840 9,899 1,364 4,352 14,537 6,292 9,465 8,778 15,221 14,062 20,253 Total current assets Net property, plant and equipment 17,292 19,025 25,844 28,459 29,931 39,762 Total assets 23,584 28,490 34,622 43,680 43,993 60,015 Accounts payable Notes payable Current portion of long-term debt 681 6,323 191 915 7,236 318 964 6,820 512 1,189 5,171 3,097 911 2,746 2,987 1,816 8,131 2,729 6,644 Total current liabilities Long-term debt Shareholders' equity 7,194 3,009 13,381 8,469 3,153 16,868 8,296 3,291 23,035 9,456 5,662 28,561 5,067 32,282 12,676 2,624 44,715 Total liabilities and equity 23,584 28,490 34,622 43,680 43,993 60,015 Exhibit 1- continued TCBF, Inc. -- Selected Market Based Data (5000s) 2014 18.13 2,967 1.60 End-of-year share price ($) Shares (000s) Earnings per share ($) Dividends per share ($) Price to earnings ratio Beta 2015 15.91 2,967 1.18 2016 27.75 2,967 2.59 0.51 10.70 2017 27.38 2,967 2.47 0.61 11.09 2018 33.30 2,967 1.96 0.70 17.01 2019 39.96 2,967 6.21 2.02 6.44 1.25 11.33 13.54 Exhibit 2 Selected Financial Data for Processed Food Producers Agro Blast 2019 43 7.9 Sales ($millions) Net Income (Smillions) Earnings per share Total Assets ($millions) Accounts Payable (Smillions) Notes Payable (Smillions) Long-Term Debt ($millions) Stockholder's Equity (Smillions) Shares Outstanding (Millions) Stock Price ($) Beta Bond rating $1.58 34 2.8 4.1 5.1 22 Flash Buds Green Thumbs 2019 2019 39 921 7.3 45 $3.66 $4.54 32.1 645 2.1 80 4.3 95 4.7 180 21 290 5 14 1.38 AA 1.99 31 1.41 AA 9.91 33 1.13 BBB Sales ($millions) Net Income (Smillions) Earnings per share Total Assets ($millions) Accounts Payable (Smillions) Notes Payable (Smillions) Long-Term Debt (Smillions) Stockholder's Equity (Smillions) Shares Outstanding (Millions) Stock Price ($) Beta Bond rating Healthy Grains 2019 2072 118 $4.57 1028 112 141 203 572 Macro Tastes 2019 1364 96 $5.29 903 97 123 195 488 Yummy Veggies 2019 4403 302 $2.93 2526 230 346 470 1480 25.82 39 0.97 A 18.15 35 0.74 A 103.07 24 1.14 A Exhibit 3 Frozen Food Business Proposal -- Pro Forma Income Statement and Asset Requirements Projections 2020-2026 ($000) 2020 2021 2022 20223 2024 2025 2026 Revenues 20,422 49,561 65,260 73,632 83,140 93,850 Cost of goods sold Operating Expenses Depreciation 17,844 2,246 587 40,639 5,452 554 53,513 6,199 534 60,378 6,995 525 68,175 7,898 527 76,957 8,915 538 Pretax operating profit (256) 2,915 5,013 5,733 6,540 7,439 Balance Sheet 317 Cash Accounts receivable Inventories 204 1,701 3,973 496 4,128 7,900 653 5,436 10,402 737 6,134 11,737 832 6,925 13,253 939 7,818 14,960 1,750 2,067 5,879 12,524 16,491 18,607 21,010 23,716 Total current assets Net property, plant and equipment Total assets 5,000 7,067 5,196 11,075 5,687 18,211 6,062 22,553 6,418 25,025 6,856 27,866 7,401 31,118