Assumptions		(Note: You must enable iterative calculations option before viewing the answers to this problem)
Sales growth rate (2021/22, 2022/23, 2023/24)	15%
Sales growth rate (2024/25, 2025/26)	3%	(use this growth rate in calculation of terminal value and in part e)
Current assets/Sales	16%
Current liabilities/Sales	8%
Net fixed assets/Sales	40%
Costs of goods sold/Sales	30%
Depreciation rate	12%
Interest rate on debt	7.00%
Interest paid on cash and marketable sec.	1.00%
Tax rate	35%
Dividend payout ratio	15%
Year	2021	2022	2023	2024	2025	2026
Income statement (mil. US$)
Sales	$4,000
Costs of goods sold
Interest payments on debt
Interest earned on cash and marketable sec.
Depreciation	($210)
Profit before tax
Taxes
Profit after tax (net income)
Dividends
Retained earnings
Balance sheet (mil. US$)
Cash and marketable securities	$120
Current assets
Fixed assets
At cost
Accumulated Depreciation	($265)
Net fixed assets
Total assets
Current liabilities
Debt
Stock	$600
Accumulated retained earnings	$850
Total liabilities and equity
Year	2021	2022	2023	2024	2025	2026
Free cash flow calculation
Start with Profit after tax
Add back depreciation
Subtract increase in current assets
Add back increase in current liabilities
Subtract increase in fixed assets at cost
Add back after-tax interest on debt
Subtract after-tax interest on cash and mkt. sec.
Free cash flow (mil. US$)
Valuing the firm
Weighted average cost of capital (WACC)	26%
Year	2021	2022	2023	2024	2025	2026
FCF
Terminal value
Total
NPV of row 69
Add in initial (year 2021) cash and mkt. sec.
Enterprise value
Subtract out value of firm's debt today (yr 2021)
Equity value
		Tax Rate
		20%	25%	35%
	1%
growth rate	2%
of sales	3%
for 2025/26	4%
	5%
	6%
	7%
	8%
	9%
(f) All else equal, what is the effect of a decline in tax rate from 35% to 20% on the equity value? For which growth rate the impact of tax rate decrease is most prounounced? Use numbers in the data table to answer this question. Provide your answer below. (6 points)