Answer all questions at the end.

Kelsea Miller, who worked for an investment firm, was evaluating Harrison Corp. Shortly after year-end 2019 she wanted to determine if an investment in Harrison stock would be favorable. She was able to obtain the appropriate financial data for Harrison that would allow her to calculate the intrinsic value of a share of Harrison stock. Harrison stock was presently trading at $11.25 in the stock market.

Harrisons 2019 EBIT was $2,000,000 and the company had a 40% income tax rate.

On the 2019 year-end balance sheet Harrison had a total of $4,300,000 in debt and $300,000 in marketable securities (a non-operating asset). One million shares of stock were outstanding. Kelsea calculated Harrisons WACC to be 8%.

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Harrisons EBIT was projected to be $2,100,000 in 2020, $2,300,000 in 2021 and $2,500,000 in 2022.

Harrisons net operating working capital was projected to annually increase over the prior year by $300,000 in 2020, $350,000 in 2021 and $390,000 in 2022. Net fixed assets were expected to annually increase over the prior year by $100,000 in 2020, $100,000 in 2021, and $110,000 in 2022.

Based on a narrative about the long term prospects of Harrison Corp., Kelsea felt that it was reasonable to assume that free cash flows beyond 2022 would grow at a 3%

annual rate.

Answer the following questions using the Harrison case data presented above:

What were Harrisons projected free cash flows for each of the following three years: 2020, 2021 and 2022?

As part of a value of operations calculation for Harrison, what was the 2022 Harrison terminal value?

What was Harrisons value of operations at year-end 2019?

What was Harrisons total value at year-end 2019?

What was Harrisons value of equity at year-end 2019?

What was Harrisons intrinsic value per share at year-end 2019?

Based on this information, should Kelsea recommend investing in Harrison stock?