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 equity is $122 million as of 12/31/2007.

c) Sales forecast for 2008 is $10 million, and sales (nominal) are projected to double each year in the forecast period through 2012. Sales growth (nominal) in the perpetuity period is projected to be 10% annually. Sales for 2007 were $4 million.

d) EBIT margin is 70% in 2008, 75% in 2009, 80% in 2010, 85% in 2011, 90% in 2012, and 60% for all years thereafter. Assume that the nominal ROI is 34% in the perpetuity period. The tax rate is 40% in the forecast and perpetuity periods.

e) Accounts Receivables were $1 million, Inventory was $1.5 million, and Accounts Payable were $500,000, all as of 12/31/2007

f) CAPX is $10 million in 2008, and will increase by $5 million per year until 2012, when CAPX will be $30 million. Depreciation will be $20 million in 2008, and will increase by 20% annually throughout the forecast period.

g) Expected inflation is 4% annually in all years. The firm has legal liabilities that total $50 million.

h) Cost of debt capital is 8% (nominal, before accounting for tax benefit) and optimal leverage is 40% of the market value of equity plus debt. i) Risk-free rate is 5%, risk premium is 8%, and small-cap risk premium is 3.9%, all nominal. Assume that beta is 1.82 when the optimal leverage ratio is 40%.

j) Cash totals $43 million, and Long-Term Debt is $120 million, both as of 12/31/07. There are 25 million common shares outstanding. There are no options.

ANSWER: DCF Per-share Equity Value of Common Stock = $12.00