Greshak Company, Inc. is in the business of producing and marketing high-tech widgets. Assume you are a financial analyst at Greshak and have been charged with the task of estimating the value (i.e., intrinsic value) of the company's outstanding common stock at December 31, 2017. As part of that analysis, management has provided you with the company's most recent income statement and balance sheet for 2017 as well as financial projections of each for the next 4 years. Assume Greshak's applicable tax rate is 40% and that management has determined its weighted average cost of capital (WACC or discount rate) to be 14.0%. Further, assume Greshak has estimated its long-term sustainable growth rate (g) for its free cash flows (FCF) to be 3% upon reaching earnings stabilization after 2021 (the last year in the projection period).

Using MS-Excel and the template on the following pages, calculate the Intrinsic Value of Greshaks operations (i.e., the estimated value of the company) using the data above (hint see Supernormal Growth methodology in Chapter 6 and combine with Free Cash Flow methodology).

• Projected Free Cash Flow
  Particulars	Actual	Projected	Projected	Projected	Projected
  	2017	2018	2019	2020	2021
  NOPAT:
  EBIT	79+24=103	119.5	134	158	168
  tax @40%	41.2	47.8	53.6	63.2	67.2
  NOPAT	61.8	71.7	80.4	94.8	100.8
  Add: Depreciation	42	59	48	45	45
  Operating Cash Flow	103.8	130.7	128.4	139.8	145.8
  Total Operating Capital:
  Operating Current Assets:	435	460	492	530	564
  Less: Operating Current Liabilities	206	220	245	260.8	290
  Net Operating Working Capital	229	240	247	269.2	274
  Investment in Net Working Capital	NA	11	7	22.2	4.8
  Annual Capital Expenditures	NA	690-600=90	75	65	70
  Total Investment in Operating Capital		101	82	87.2	74.8
  Free Cash Flow:
  Operating Cash Flow	NA	130.7	128.4	139.8	145.8
  Less: Total Investment in Operating Capital	NA	101	82	87.2	74.8
  Projected Free Cash Flow	NA	29.7	46.4	52.6	71

Greshak Company, Inc. Financial Statements with Projections All amounts in millions of USD Statements of Income for years ended December 31 in millions of USD) Actual Projected Net Sales Cost of Goods Sold Rent Salaries Depreciation Interest Expense 1,050.0 1,275.0 1475.0 1,650.0 1,735. 568.0 680.0 785.00 900.00 982.00 80.0 100.5 118.00 128.00 135.00 125.0 157.0 195.00 222.00 235.00 42.0 59.0 48.0 45.0 45.0 24.0 225 24.0 20.0 21.0 159.0 195.00 197.00 170.00 971. 1,1780 1.365.0 1,512.0 1,588.0 147.0 132.0 Total Expenses Pre-Tax Income 79.0 Taxes (40%) Net Income Balance Sheets at December 31, in millions of USD) Projected 2019 2020 Actual 2017 25.040.0 45.0 50.0 62.0 125.0 1250 142.0 168.0 1. Accounts Receivable 285.0 295.0 4835.0 800 920 53003640 Total Current Assets 600.0 690.0765.0 830.0 900.0 525.0 375.0 Gross Fixed Assets Less: Accumulated Depreciation Net Plant and Equipment Total Assets 328.0 387.0 303.0 763.0 435.0 480.0 272.0 330.0 939.0 Accounts Payable Notes Payable 60.070.082.0 85.8105.0 80.0 70.0 71O 70.0 75.0 80.0 105.0 110.0 206.0 220.0 245.0 0.3 290. Total Current Liabilities Long-Term Bonds 161.0 195.0 200.0 237.0 367.0 415.0 445.0 497.8 548.0 Total Liabilities Common Stock (12,000,000 shares) Retained Earnings 180.0 160.0 150.0 160.0 160.0 180.0 340.0 07.0 188.0 348.0 763.0822.0 217.0 231.0 Total Common Equity Total Liabilities and Equity 377.0 382.2 391.0 880.0 Greshak Company, Inc. Intrinsic Valuation at December 31, 2017 All amounts in millions of US0 Weighted Average Cost of Capital (WACC) Estimated L-T Growth Rate Projection 2021 2018 2020 FCF Terminal 2019 Free Cash Flow Constant Growth Value FCF/(WACC- Projected Cash Flows Value of Operations or 100% of Company How much is each share of common stock worth? value of 100% of Company Less: Value of Interest-Bearing Debt Less: Value of Preferred Stock Value of Common Equity Number of Common Shares Outstanding (millions) Price per Share Book Value per Share Price-to-Book Ratio