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7. In early 2018, Vacation Experts Inc. was interested in acquiring Beach Homes, Inc., a privately held, real estate company. Beach Homes has 85 million shares currently outstanding. As a first step in deciding what price to bid for Beach Homes, Vacation Experts' finance department has prepared a two-year financial projection for the company assuming an acquisition. Use this projection and Beach Homes' 2017 actual financial figures to answer the questions below. Beach Homes Inc. 2-year Financial Projection ($ millions) 2017 2018 2019 Income statement Net sales 320 395 410 Cost of sales 120 130 145 Gross income 200 265 265 Depreciation 50 55 58 Interest expense 15 17 22 Operating expenses 25 24 28 Net income before tax 110 169157 Provision for taxes 33 51 47 Net income after tax 77 118 110 Balance sheet Cash and securities Accounts receivable Inventory Other current assets Total current assets Gross property and equipment Accumulated depreciation Net property and equipment Goodwill Total assets 45 60 62 25 51 42 47 74 50 18 15 17 135 200 171 511 612 692 102 157 215 613 769 907 112 112 112 860 1081 1190 50 93 89 20 Accounts payable Short-term debt Current portion long-term debt Accrued expenses Total current liabilities Long-term debt Deferred taxes Shareholders' equity Total liabilities and equity 18 142 358 60 300 860 20 21 208 211 400 390 55 61 418 528 1081 1190 7a. Estimate the present value of Beach Homes Inc.'s free cash flow for the years 2018 - 2019. Vacation Expert's WACC is 8 percent. Beach Homes' WACC is 10.5 percent, and the average of the two companies' WACCs, weighted by sales, is 9 percent. EBIT Tax rate EBIT(1-tax rate) Depreciation Capital expenditures Working capital Change in working capital Free cash flow 7b. Estimate the share price Vacation Experts Inc. should pay for Beach Homes at the end of 2017 assuming in the years after 2019 the company's free cash flow grows 5 percent per year in perpetuity