Exhibit 6.18 presents the income statement and reorganized balance sheet for BrandCo, an $800 million consumer products company. Using the methodology outlined in Exhibit 6.5, determine NOPLAT for year 1. Assume an operating tax rate of 25 percent. Using the methodology outlined in Exhibit 6.6, determine free cash flow for year 1.

EXHIBIT 6.18 BrandCo: Income Statement and Reorganized Balance Sheet $ million Income statement Reorganized balance sheet Revenues Operating costs Depreciation Operating profit Today Year 1 800.0 840.0 Operating working capital1 (640.0) 672.0) Property and equipment 40.0) 42.0) nvested capital 120.0 126.0 Today Year 1 73.6 438.4460.3 508.5 533.9 70.1 Interest expense Earnings before taxes 16.0) 104.0 (16.0) 110.0 Debt Shareholders' equity Invested capital 200.0 210.0 308.5 323.9 508.5 533.9 Taxes Net income (26.0 (27.5) 78.0 82.5 Accounts payable has been netted against inventory to determine operating working capital 2. BrandCo currently has 50 million shares outstanding. If BrandCo's shares are trading at $19.16 per share, what is the company's market capitaliza- tion (value of equity)? Assuming the market value of debt equals today's book value of debt, what percentage of the company's enterprise value is attributable to debt, and what percentage is attributable to equity? Using these weights, compute the weighted average cost of capital. Assume the pretax cost of debt is 8 percent, the cost of equity is 12 percent, and the marginal tax rate is 25 percent 3. Using free cash flow computed in Question 1 and the weighted average cost of capital computed in Question 2, estimate BrandCo's enterprise value using the growing-perpetuity formula. Assume free cash flow grows at 5 percent. 4. Assuming the market value of debt equals today's book value of debt, what is the intrinsic equity value for BrandCo? What is the intrinsic value per share? Does it differ from the share price used to determine the cost of capital weightings? 5. What are the three components required to calculate economic profit? Determine BrandCo's economic profit in vear 1 6. Using economic profit calculated in Question 5 and the weighted average cost of capital computed in Question 2, value BrandCo using the economic- profit-based key value driver model. Does the calculation generate enter- prise value or equity value? Should discounted economic profit be greater than, equal to, or less than discounted free cash flow? Hint: remember, prior