Assume the cost of capital for the parent company is 9% and the cost of capital for similar projects as to this new division is 10.1%. Tax Rate=35%. The company is all equity financed.

1. What is the NWC each year?

2. What is the change in capex each year?

3. What is the FCF each year?

3a. Projected income statement Pounds Price per pound () 2004 2005 2006 2007 2008 2009 5,500 12,000 14,265 14,500 14,750 $5.27 5.85 s 6.50 7.21 8.00 28,999 70,230 92,669 104,557 118,059 Revenues (thousands) COGS Gross profit Sales Administrative and General Depreciation Pretax operating profit (EBIT) 25,339 57 58875,988 85,738 3,660 12,64216,681 18,820 21,251 3,190 7,725 8,803 9,933 11,216 748 $ (363) 4,130 7,119 $ 8,141 $ 9,287 833 787 758 746 3b. Projected balance sheet Assets Cash Accounts receivable Inventories Other current assets Total Current assets 2008 200200 2009 2004 2005 $ 450 290 $ 702 927 1,046 1,181 2,415 5,850 7,719 8,709 9,834 2,485 5,063 9,790 12,919 14,575 16,458 581 1,404 1,853 2,092 2,361 $ 2,935 8,348 17,746 23,418 26,422 $ 29,834 Net plant and equipment (NPP&E) Other long-term assets (OLTA 7,000 6,9447,019 7,2187,535 7,966 435 1,056 1,390 1,568 1.771 100 10,035 $ 15,727 25,821 32,026 35,525 39,571 Total assets Liabilities Accounts payable Net asset value (TA-A/P) Total Liabilities 2,083 4,733 6,246 7,047 7957 10,035 13,645 21,088 25,780 28,478 31,614 10,035 $ 15,727 $ 25,821 32,026 s 35,525 $ 39.571 3a. Projected income statement Pounds Price per pound () 2004 2005 2006 2007 2008 2009 5,500 12,000 14,265 14,500 14,750 $5.27 5.85 s 6.50 7.21 8.00 28,999 70,230 92,669 104,557 118,059 Revenues (thousands) COGS Gross profit Sales Administrative and General Depreciation Pretax operating profit (EBIT) 25,339 57 58875,988 85,738 3,660 12,64216,681 18,820 21,251 3,190 7,725 8,803 9,933 11,216 748 $ (363) 4,130 7,119 $ 8,141 $ 9,287 833 787 758 746 3b. Projected balance sheet Assets Cash Accounts receivable Inventories Other current assets Total Current assets 2008 200200 2009 2004 2005 $ 450 290 $ 702 927 1,046 1,181 2,415 5,850 7,719 8,709 9,834 2,485 5,063 9,790 12,919 14,575 16,458 581 1,404 1,853 2,092 2,361 $ 2,935 8,348 17,746 23,418 26,422 $ 29,834 Net plant and equipment (NPP&E) Other long-term assets (OLTA 7,000 6,9447,019 7,2187,535 7,966 435 1,056 1,390 1,568 1.771 100 10,035 $ 15,727 25,821 32,026 35,525 39,571 Total assets Liabilities Accounts payable Net asset value (TA-A/P) Total Liabilities 2,083 4,733 6,246 7,047 7957 10,035 13,645 21,088 25,780 28,478 31,614 10,035 $ 15,727 $ 25,821 32,026 s 35,525 $ 39.571