It is 2019 and you are an investment banker evaluating an offer to purchase Spartan Industries, Inc. (“Spartan”). The offer presents a 10% premium to the existing stock price. However, you have reason to believe the market price maybe undervalued. In particular, you feel like the implied Beta of 1.6 is too high resulting in a higher discount rate. As a financial analyst you must determine the value for Spartan. You have historical stock price and S&P price information. You are uncertain of Spartan’s Cost of Debt (rD), but you are aware of the following: 1.In 2018, a direct competitor issued $97 million in debt with an interest rate of 8.25%; 2.Additionally, Spartan has 125million shares outstanding with a current stock price of $11.23/share Additionally, you know the following: Benchmark Treasury Yield US 3-MO 1.556% US 2-YR 1.68% US 5-YR 1.751% US 10-YR 1.945% US 30-YR 2.427% • The historical market risk premium is 8%. • See spreadsheet for historical price information. Assignment: 

1. Calculate the following for Spartan: a. Free Cash Flow; b. Weighted Average Cost of Capital (“WACC”) c. Residual Value (using both the “Perpetuity with Growth” and “PVGO = 0” methods); d. Final Per-Share Valuation (Use “Perpetuity with Growth” and “PVGO = 0” methods). 

Instructions and Hints: 1. Financial Statements: 

a. Use the pro-forma information provided in the solution to HW#2. 

b. Use the following financial periods: i. Last historical period should be 2018 (which you need to calculate for purposes of showing changes to fixed assets and working capital in 2019). ii. Pro-forma period should be 2019-2023. iii. Residual (terminal) period should be 2024. 

c. For purposes of calculating net working capital for the period 2019-2023, use the following net working capital/sales ratio: .24/1, or 24%. 2. Use the Short-and Long-Term Debt figures provided in the solution to HW #2. 

3. Calculate Net Fixed Assets (i.e., PPE & Other Fixed Assets) using the solution to HW #2. 

4. WACC: Use market values and Cost of Equity from HW #6 5.Hints: a. First, calculate FCF b. Next, calculate WACC c. Next, calculate PV of FCF, Residual Value and its PV. d. Finally, perform the valuation using the Perpetuity with Growth and the PVGO=0 models. (HINT: As between these two models, the only input changing is Residual Value). Insights: What happens to the stock valuation with the implied Beta of 1.6 that the firm offering to purchase the company used? The accompanying spreadsheet offers historical price information, etc. Use the accompanying Excel spreadsheet to calculate Beta, Cost of Equity, the WACC and DCF.