EXHIBIT 4-21 Mackinac Inc. Annual Income Statement
30 June 2016 (in thousands)
		2016
Sales		$250,000
Cost of goods sold		125,000
Gross operating profit		125,000
Selling, general, and administrative expenses		50,000
EBITDA		75,000
Depreciation and amorization		10,500
EBIT		64,500
Interest expense		11,000
Pretax income		53,500
Income taxes		16,050
Net income		$37,450
Shares outstanding		13,000
EPS		2.88
EXHIBIT 4-22 Mackinac Inc. Balance Sheet
30 June 2016 (in thousands)
	2015	2016
Current Assets
Cash and equivalents	$11,020	$20,000
Receivables	35,000	40,000
Inventories	21,000	29,000
Other current assets	23,000	23,000
Total current assets	$90,020	$112,000
Noncurrent Assets
Property, plant, and equipment	$130,000	$145,000
Less: Accumulated depreciation	32,500	43,000
Net property, plant, and equipment	97,500	102,000
Investments	70,000	70,000
Other noncurrent assets	36,000	36,000
Total noncurrent assets	203,500	208,000
Total assets	$293,520	$320,000
Current Liabilities
Accounts payable	$35,000	$41,000
Short-term debt	8,000	12,000
Other current liabilities	15,500	17,000
Total current liabilities	$58,500	$70,000
Noncurrent Liabilities
Long-term debt	100,000	100,000
Total noncurrent liabilities	100,000	100,000
Total liabilities	158,500	170,000
Shoreholders' Equity
Common equity	40,000	40,000
Retained earnings	95,020	110,000
Total equity	135,020	150,000
Total iabilities and equity	$293,520	$320,000
EXHIBIT 4-23 Mackinac Inc. Cash Flow Statement
30 June 2016 (in thousands)
		2016
Cash Flow from Operating Activities
Net income		$37,450
Depreciation and amorization		10,500
Change in Working Capital
(Increase) decrease in receivables		($5,000)
(Increase) decrease in inventories		(8,000)
Incerase (decrease) in payables		6,000
Incerase (decrease) in other current liabilities		1,500
Net change in working capital		(5,500)
Net cash from operating activities		$42,450
Cash Flow from Investing Activities
Purchase of property, plant, and equipment		($15,000)
Net cash from investing activities		($15,000)
Cash Flow from Financing Activities
Change in debt outstanding		$4,000
Payment of cash dividends		(22,470)
Net cash from financing activities		(18,470)
Net change in cash and cash equivalents		$8,980
Cash at beginning of period		11,020
Cash at end of period		$20,000
Mackinac has announced that it has finalized an agreement to handle North American production of a successful product currently marketed by a company headquartered outside North America. Jones decides to value Mackinac by using the DDM ad FCFE models. After reviewing Mackinac's financial statements and forecasts related to the new production agreements, Jones concludes the following:
					Mackinac's earnings and FCFE are expected to grow 17 precent a year over the next five years before stabilizing at an annual growth rate of 9 precent.
										Mackinac's FCFF is expected to grow 16 precent a year over the next five years before stabilizing at an annual growth rate of 8 precent.
Mackinac's beta is 1.25
The government bond yield is 6 precent, and the market equity risk premiun is 5 precent.
The cost of debt is 10%, and the target debt to capital is 15%.
A. Calculate the value of a share of Mackinac's common stock by using the two-stage DDM Model.
B. Calculate the value of a share of Mackinac's common stock by using the two-stage FCFE model.
C. Calculate the value of a share of Mackinac's common stock by using the two-stage FCFF model.