7. To determine the stock value based on the discounted free cash flow method: 3. Forecast the free cash flows using the historic data from the financial statements to compute the five-year average of the following ratios: i. EBIT/Sales: Because Morningstar does not report EBIT, calculate EBIT from EBITDA (Income Statement) by subtracting Depreciation and Amortization Statement of Cash Flow) ii. Net Property Plant and Equipment/Sales iii. Net Working Capital (excluding cash)/Sales b. Create a timeline for the next six years. c. Forecast future sales based on the most recent year's total revenue growing at the five-year growth rate (from 4) for the first five years. Use a long-run revenue growth rate of 3% for year six. d. Under the assumption that the ratios in part (a) remain constant, use the average ratios com- puted in part (a) to forecast EBIT (Sales X EBIT to Sales ratio), Net Investment (change in Sales X PPE to Sales ratio), and increases in NWC (change in sales X NWC to Sales ratio) for the next six years. e. Forecast free cash flow for the next six years using Eq. 9.20 and the current corporate tax rate of 21%. f. Estimate the terminal enterprise value in year five using the free cash flow in year six and Eq. 9.24. g. Determine the enterprise value of the firm as the present value of the free cash flows. h. Determine the stock price using Eq. 9.22. i. Compare your result to the actual stock price. What assumptions might you change to justify this price? 8. Compare the stock prices from the two methods to the actual stock price. What recommenda tions can you make as to whether clients should buy or sell Columbia stock based on your price estimates? 9. Explain to your boss why the estimates from the two valuation methods differ, Specifically, ad dress the assumptions implicit in the models themselves as well as those you made in preparing your analysis. Why do these estimates differ from the actual stock price of Columbia? 7. To determine the stock value based on the discounted free cash flow method: 3. Forecast the free cash flows using the historic data from the financial statements to compute the five-year average of the following ratios: i. EBIT/Sales: Because Morningstar does not report EBIT, calculate EBIT from EBITDA (Income Statement) by subtracting Depreciation and Amortization Statement of Cash Flow) ii. Net Property Plant and Equipment/Sales iii. Net Working Capital (excluding cash)/Sales b. Create a timeline for the next six years. c. Forecast future sales based on the most recent year's total revenue growing at the five-year growth rate (from 4) for the first five years. Use a long-run revenue growth rate of 3% for year six. d. Under the assumption that the ratios in part (a) remain constant, use the average ratios com- puted in part (a) to forecast EBIT (Sales X EBIT to Sales ratio), Net Investment (change in Sales X PPE to Sales ratio), and increases in NWC (change in sales X NWC to Sales ratio) for the next six years. e. Forecast free cash flow for the next six years using Eq. 9.20 and the current corporate tax rate of 21%. f. Estimate the terminal enterprise value in year five using the free cash flow in year six and Eq. 9.24. g. Determine the enterprise value of the firm as the present value of the free cash flows. h. Determine the stock price using Eq. 9.22. i. Compare your result to the actual stock price. What assumptions might you change to justify this price? 8. Compare the stock prices from the two methods to the actual stock price. What recommenda tions can you make as to whether clients should buy or sell Columbia stock based on your price estimates? 9. Explain to your boss why the estimates from the two valuation methods differ, Specifically, ad dress the assumptions implicit in the models themselves as well as those you made in preparing your analysis. Why do these estimates differ from the actual stock price of Columbia