FBB Limited had sales in year O of $250,000 with cost of goods sold of $160,000 and depreciation

at $11,600. They have made projections for their sales for the next three years of $250,000,

$248,000 and $256,000. They believe their costs of goods sold will remain at the current level of

$160,000 p.a. with the same level of depreciation. The tax rate is 30% p.a, and is paid in the year of

income. The WACC for FBB's is 7%, tax is 30% and the long-run (assume perpetual) growth rate

after year three is 3%.

a) What are the cash flows for FBB's? (2 marks)

b) What is the horizon value for FBB's? (2 marks)

c) What is the value of FBB's? (2 marks)