free cash flow

1-3. Free Cash Flow; WACC; NPV (3 questions) 2016 2015 2017 2018 2019 2020 2021 M&A 1 2 Revenue 142343 152235 106364 144978 186152 205309 213635 EBIT+After Tax 4225 4522 2214 3214 3621 4314 5835 Capital Expenditure Dep. & Amortization Net Working Capital Change 1823 1088 1657 1577 2606 2395 3123 575 437 622 1026 1066 1045 1087 -4808 6090 1539 903 1689 1758 Free Cash Flow -4342 3382 7785 1044 1178 Other information Your Investment in Acquisition $2,000 in 2019 Capital Structure $1,200 from Bank; $800 from Investors Interest Rate = 5% Cost of Equity = 10% Corporate Tax Rate 35% WACC 1. Calculate free cash flow in 2020 and 2021. Show your work. 1.1. FCF in 2020 (2 Points) 12. FCF in 2021 (2 Points) 2. Calculate Weighted Average Cost of Capital? Show your work. Tax rate is 35 %. (2 Points) 3. What is the Net Present Value of the firm to be acquired? Show your work. Are you going to reject or accept the deal? Why? (2 points) 4-5. Present Value; Inflation (2 questions) Assume the investment project in the previous question will generate $1,000 and $1,000 in free cash flows for two years (2020 (first year) and 2021 (Second year)), respectively. The forecasted annual inflation is 2 % a year. Show (4) the actual (or real) free cash flow (after inflation rate is considered) in 2020 (First Year) and 2021 (Second Year). If WACC is 10 % , what is the (5) present value of the investment (Investment year is 2019)? Show your work. 4.1. Real FCF in 2020 (2 points) 4.2. Real FCF in 2021 (2 points) 5. Calculate PV at 10 % of WACC (3 points) 6-7. IRR 6. You plan to purchase a Pizza Store for $100,000. The investment will generate $112,000 in free cash flow for the first year. What is the IRR on this investment? Show your work (2 points) 7. If you borrowed $50,000 from Bank at 5 % of interest rate and raised $50,000 from investors at 10 % of cost of equity, are you going to accept this project? Why? (Tax rate is 35 % ) . (3 points)