BACKGROUND

The Big Consumer Product Company acquires 100% of Green Grass Diapers for $ 540,000 on 12/31/x0. Green Diapers company is diaper manufacturer that specializes in the manufacture of organic diapers. It started off as a cloth diaper service company. After some R & D, they launched a reasonably successful brand of ecologically friendly diapers with the "Green Grass" trademark. Assume that Big Consumer Product Company is a publicly traded company. Green Grass is a debt-free company. Green Grass holds a patent for its ecologically friendly diaper technology. The management of Big Consumer Product Company provides you with the forecast shown below. The Base year is the current year with historical data. Details of buyer specific synergies are also provided. You have previously computed the weighted average cost of capital to be 15% for Green Grass Company which is consistent with the management's estimate. Your analysis suggests that market participant revenue and cost synergies are 4% of revenues and of COGS and Operating expenses respectively. REQUIRED: Each TAB has a question that you need to answer. Clearly state all assumptions and show your workings.

Ques.

Questions:

A.

Construct a usable forecast that is reasonable. Specifically state what adjustments you have made to the Management forecast and why.

You can assume and use the same numbers for depreciation expense, capital expenditure and change in working capital.

Hint: use the framework from the PFI tab