Bumtug Ltd. (BTG) focuses solely on beverage contract packing for a variety of firms in Australia. You aim to value this firm using the Free Cash Flows to Firm model. The following information is needed to model the free cash flows to the firm (FCFF) for the next three years:

• The firms equipment book value is worth of $12mil which can be fully depreciated straight-line over the three years for tax purposes. After that, depreciations will be minimal and not relevant for valuation purposes.
• The net working capital is 10% of the annual sales.
• Sales revenue was $50mil this year and expect to grow at 10% every year for the next three years. Total manufacturing costs and operating expenses (excluding depreciation) are 80% of sales.
• After year 3, since estimating the future FCFF explicitly becomes too imprecise, you assume that the FCFF will grow at long-term GDP growth rate of 2% forever.

You further collect the information about debt and equity to assist the valuation:

Debt: BTGs long-term debt consists of 12% bonds issued with a face value of $15 million, paying semi-annual coupons. These bonds have exactly 8 years to maturity with 16 coupons to be paid. The bonds are currently trading at par. You also estimate that the bonds default risk is 0.

Equity: Its equity consists entirely of ordinary shares. The firms stock price is current at $2/share. There are 10 million shares outstanding. The equity beta is 2.

Market Data: The market risk premium is 9% and the risk-free rate is 3%. The tax rate is 30%.

1. What are the free cash flows to the firm for the first three years?

2. What is the firms Weighted Average Cost of Capital?

3. What is the firms enterprise value? What is the firms equity value? What is the firms share intrinsic value?

4. Based on your valuation, will you invest/ not invest in the company?