a) Express sales, etc. in millions (so that $1 billion is expressed as $1,000 in the spreadsheet) and use 2 decimals, except use 4 decimals for the discount factor (which equals (1+WACC)N), to replicate my numbers exactly. However, normal rounding variation should not affect your score.

b) Appraisal date is 1/1/2008, and Forecast Period is 2008 through 2012 inclusive. The Book Value of the Companys Assets is $253 million, and the book value of the Companys equity is $222 million, both as of 12/31/2007.

c) Sales are forecasted to be $80 million for 2008, and sales (nominal) are projected to increase 50% each year in the forecast period through 2012. Sales growth (nominal) in the perpetuity period is projected to be 8% annually.

d) Actual sales for 2007 were $50 million. Accounts Receivable were $40 million, Accounts Payables were $25 million, and Inventory was $5 million as of 12/31/2007.

e) EBIT margin is projected to be 20% in 2008, 30% in 2009, 40% in 2010, 45% in 2011, 50% for 2012, and 50% for all years thereafter. The tax rate is expected to be 40% in the forecast and perpetuity periods.

f) CAPX is projected to be $20 million in 2008, and will increase by $10 million per year until 2012, when CAPX will be $60 million. Depreciation is expected to be $40 million in 2008, and will increase by 10% annually throughout the forecast period.

g) By managements projections, the Companys Plowback Ratio in the last year of the forecast period is 46% of NOPAT. Expected inflation is 4% annually in all years. Assume that the nominal ROI is 20% in the perpetuity period.

h) To compute the WACC, assume that as of 12/31/07 the risk-free rate is 5%, risk premium is 8%, and small-cap risk premium is 4%, all nominal. Assume that beta is 2.00 when the optimal leverage ratio is 50%. Cost of debt capital is 8.333% (nominal, before accounting for tax benefits) and optimal leverage is 50% of the market value of equity plus debt.

i) Cash as of 12/31/07 is $121 million and Long-Term Debt is $70 million. The firm has legal liabilities of $70 million, environmental liabilities of $80 million, and an under-funded pension fund of $50 million.

j) The firm also owns 200,000 acres of prime real estate that is not used for operations. This excess real estate was recently appraised, whereby it was valued at $1,000/acre in the highest and best use. The 200,000 acres of real estate were bought by the Company 30 years ago for a total investment of $20 million (the cost basis for tax purposes). Assume that the real-estate capital gains tax that would be payable if the Company sold the real estate for its appraised value on 12/31/07 equals 25% of the difference between the real estates value and its cost basis.

k) There are 25 million common shares outstanding. The firm has 12 million management A options outstanding; each is exercisable into one share of common stock. The exercise price on these options is zero, and the intrinsic value of each of these 12 million options is no greater than $40 as of 12/31/07. The firm also issued 5 million management B options; each is exercisable into 2 common shares. The exercise price is $40 per share ($80 per option).

ANSWER: DCF Per-Share equity value of Common Stock = $20.00