3. Actual Forecast

($ millions) Yr 0 Yr 1

Sales $ 500 530

Operating Costs 250 260

EBIT 250 270

Interest Expense 8 10

EBT 242 260

Taxes (25%) 60.5 65

Net Income $ $181.5 195

Dividends 166.3 170

Add to RE 15.2 25

Balance Sheet

Cash $ 10 10

Receivables 82 83

Inventories 103 108

Current Assets 195 201

Net Fixed Assets 152 175

Total Assets 347 376

Accounts Payable 40 50

Notes Payable 10 15

Accruals 23 20

Current Liabilities 73 85

Bonds 70 62

Common Stock 150 150

Retained Earnings 54 79

Total Liability & Eq 347 376

a. Assume the WACC= 10% and growth rate of 4% after year 1. Find FCF for Year 1.

b. Find the horizon value of FCFs after year 1 and the value of the corporate using the corporate value method.

c. Find the market value of the common stock assuming the book value of debt equals the market value.