Following Q2, the financial manager of company XXX is tempted to acquire company YYY. Company YYY is a private company without a stock market price. However, it is in the same line of business as company XXX, you can assume it has the same business risk. The following table sets out the information that you need to forecast company YYYs free cash flows (the highlighted numbers are all forecasted numbers). You can assume the cash flow in year 0 has already occurred when you calculate the value of the business. The value horizon is 3 years. From year 4 onward, you assume a long-term growth rate of 4% each. Now assume Company XXX plans to finance the purchase with $30,000 of debt. It intends to pay down the debt to $22,599 in year 3 so that the debt ratio at the horizon is 25%, the normal debt ratio of company XXX.

Year	0	1	2	3	4
Sales	70000	71000	72000	73000	74000
Cost of goods sold	56000	56800	57600	46080	59200
Networking capital	10000	10142	10286	10429	10571
Depreciation	3500	4500	4500	4500	4500
Gross fixed assets	60000	65000	70000	75000	82000
Debt	30000	28000	25000	22599	0
Investment in fixed asset (change in gross fixed assets)	7000
Investment in working capital	300

You will use the APV method to calculate the value of company YYY (keep four decimals). Show your inputs, please.

(a). Whats profit after tax in year 3? Show inputs.

(b). Whats free cash flow in year 3? Show inputs.

(c). Whats the after-tax WACC and cost of capital of company XXX? show inputs.

(d). Whats the horizon value (not the present value)? show inputs.

(e). Whats the base-case PV of the company? Whats the PV of interest tax shields in years 1-3? Whats the PV of company YYY? show inputs.