Question
3. Actual Forecast ($ millions) Yr 0 Yr 1 Sales $ 500 530 Operating Costs 250 260 EBIT 250 270 Interest Expense 8 10 EBT
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.
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