Please see financial statements below for your project assignment. Your brother-in-law's firm is getting ready to be sold so he can move to Florida and sell t-shirts for a living. You are required to provide a valuation of the business based upon the financial statements below, as well as five-year projections for any buyer who might be interested in purchasing the company.

The forward P/E is 12, and there is a 2x market multiple.

		Actual	Forecast	Forecast	Forecast	Forecast
		2021	2022	2023	2024	2025
Net sales		$3,500
Cash	20% of sales	$700
Accounts receivable	80% of sales	$2,800
Inventories	35% of sales	$1,225
Net fixed assets	Fixed	$750
Accts. pay. & accruals	5% of sales	$175
Op. costs (excl. depr.)	85% of sales	$2,975
Depreciation	10% of fixed assets	$75
EBIT		$450

Year	FCF
2017	$200,000
2018	$275,000
2019	$450,000
2020	$600,000
2021	$800,000

Assumptions
Growth rate beyond 2021 is 5%
WACC = 8.5%
Market value of all debt is $500,000
Market Value of preferred stock is $500,000
Outstanding shares of common stock 100,000
Tax rate 40%

You just received a call from a potential buyer for your brother-in-law's business, but the buyer is quite concerned about interest rates going up. The buyer is suggesting that the Federal Reserve will likely raise interest rates by .50 at their next meeting, which will impact your WACC. Please run a second set of figures using a new WACC reflecting this forecast

Calculate Forecasted FCF

NOPAT == EBIT(1 T)

NOWC == (Cash + accounts receivable + inventories) (Accounts payable & accruals)

Total operating capital = NOWC + Net fixed assets

FCF = NOPAT Change in total operating capital

ROIC = NOPAT/(Total operating capital)

Value of operation

Vop = FCF1/ (WACC - gL)