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We wish to estimate the value of Portal Inc. under alternative assumptions about the

firms performance.

Determine Enterprise Value and MV of Equity

Using the discounted cash flow (DCF) approach to valuation and the following

assumptions, provide an estimate of Portals value.

This year sales are expected to be $750 million. They are expected to grow at a rate of 5 percent per year for the next four years and then at 3 percent per year forever.

The pre-tax operating margin currently at 15 percent will grow at a rate of 1 percent every year for four years and then stabilize at 20 percent forever

The working capital requirement to sales ratio will remain at is current level of 18 percent forever

Capital expenditure will be $50 million this year and will grow at the same rate as the sales

Annual depreciation expense for the current year will be $50 million and then grow at the same rate as the capital expenditure

Portal Inc. has $500 million of debt outstanding. It can borrow at 6 percent

Portals income tax rate is 40 percent

Portals beta is 1.05. The risk free rate and the market risk premium are 5 percent

The debt to total capital ratio of Portal, at market value is 50 percent.