Company valuation Chiara Company's management has made the projections of Free Cash Flows from for years 1-5. Use the illustrative income statement for Chiara in Table 1 (all figures are in Thousands of U.S. Dollars) to derive/calculate the free cash flows beginning in Year 0, but begin your use of cash flows starting in years 1-4. Hence, you will need to calculate the Free Cash Flow from Assets, just as mentioned below. The weighted average cost of capital (WACC) rate is used to discount these free cash flows for Chiara Company:

The WACC for Chiara Corp. is 12% and the long-run growth rate beginning in year 5 is 4%. The company has $5 million debt and 1,112,000 shares outstanding. The corporate tax rate is at 40% for this firm.

(A) What is the value per share?

(B) If the market price is presently $15.10 per share, is the company under or overvalued?

Assumptions: Debt 5,000,000 Number of shares outstanding 1,112,000 Tax rate 0.4 Opportunity cost of capital, percent (r) 0.12 Long-run growth rate 0.04 Forecast Sthousa Latest Year: 1 2 3 4 5 51,199 37,882 28,752 28,001 30,126 3,550 Sales 2 Cost of goods sold 22,879 21,678 17,560 16,459 15,631 14,987 3 Other costs 8,025 6,797 5,078l 4,678 4,987 5,134 4 EBITDA (1 2 3) 20,295 9,407 6,114 6,864 9,508 11,429 5 Depreciation 5,678 5,890 5,670 5,908 6,107 5,908 6 Profit before tax (EBIT) (4-5) 5,521 14,617 3,517 956 3,401 444 Tax 5,847 1,407 178 392 1.360 2.208 8 Profit after tax (6-7) 8.770 2.110 266 574 2,041 3,313 -54L -312 -245 127 784 235 9 Change in working capital 10 Investment (chg. in gross fixed assets) 6,547 7345 5,398 5.470 6,420 6,598