1. Compute Magna Corps Free Cash Flow assuming the following:

Operating income: $400 million

Depreciation & amortization: $30 million

Interest expense: $40 million

Capital expenditures: 120% of depreciation & amortization

Income tax rate: 35%

Dividends: $20 million

Increase in accounts receivable: $10 million

Decrease in inventory: $5 million

Decrease in accounts payable: $15 million

b) Using a 2% perpetuity growth model and a WACC of 10%, what is the expected value of Magna

Corp?

c) Using the Dividend Discount Model and the same assumptions as in (b), propose a value for Magna

Corp.