47) Mudflap Airlines anticipates: EBIT of $140,000, $150,000 and $160,000 in each of next 3 years Depreciation of $14,000, $15,000, and $16,000 Capital expenditures of $16,000, $17,000, and $18,000 Incremental increases in working capital requirements of $5,000, $7,000, and $9,000 Tax rate of 25% Free cash flows beyond year 3 growing at 3% per year Current value of debt, VD, of $700,000 Cost of debt (Kd) is 8%, and its weight in the capital structure is 43% Cost of equity (Ke) is 12%, and its weight in the capital structure is 57%

(6 points) How much is Mudflaps WACC? Please show your work.

(6 points) How much is Mudflaps NOPAT for years 1, 2 and 3? Please show your calculations below.

(Independent 12 points, graded using your numbers from the question above, whether right or wrong) How much is the FCFF for each of the three years? Please show calculations.

(Independent 6 points, graded using your numbers from the question above, whether right or wrong) How much is the sum of the present values of the FCFFs for years 1 to 3? No need to show calculations. ___________ ___________ ___________

(Independent 8 points, using your previous results, whether right or wrong)) How much is the present value (at time 0) of the terminal value of Mudflaps cash flows? Please show your work below.

(Independent 6 points, graded using your numbers from the questions above, whether right or wrong) What is the value of the firm, VF? Please show work.

(Independent 6 points, graded using your result from the question above, whether right or wrong) What is the value of the firms equity, VE? Please show work.

WACC=(VERe)+(VDRd(1Tc))

where:E=Market value of the firms equity

D=Market value of the firms debt

V=E+D

Re=Cost of equity

Rd=Cost of debt

Tc=Corporate tax rate