BACKGROUND The Big Consumer Product Company acquires 100% of Green Grass Diapers for $ 540000 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. You need to post on the discussion forum if you are confused or are not sure or you find an ambiguity. Comments & Year Assumptions Base Year 1 2 3 5 6 7 Growth Rate Steady from Year 7 12% 10% 10% 7% 6% 4% 4% Revenues 396300 443856 488241.6 537066 574660 609140 633506 658846 Buyer Specific Revenue Synergies 5% of Revenue 22193 24412 26853 28733 30457 31675 32942 Total Revenues 466049 512654 563919 603393 639597 665181 691788 COGS and Other Op. Expenses 85% of Revenues 336855 396141 435756 479331 512884 543657 565404 588020 Buyer Specific Cost Synergies 5% of Costs 19807 21788 23967 25644 27183 28270 29401 Cost with Synergies 376334 413968 455365 487240 516475 537134 558619 EBIT 19.25% from Year 1 59445 89714 98686 108554 116153 123122 128047 133169 Tax Rate (35%) 20806 31400 34540 37994 40654 43093 44817 46609 Debt Free NI 58314 64146 70560 75500 80030 83231 86560 Depreciation 14000 16000 15500 15000 14500 14000 13500 13000 Capital Expenditure 14000 15000 15000 15000 15000 14000 14000 13000 Investment in working capital 5000 6000 5600 6160 4743 4350 3074 3197 FCFF (Net Cash Flow) 53314 59046 64400 70256 75679 79657 83363 757844 WACC 15% 614712 49716 47879 45409 43077 40349 36930 351352 Acquisition Price $540,000 IRR 16.43% ($540,000) 53,314 59,046 64,400 70,256 75,679 837,501