Q2. Company B earned $20 million before interest and taxes on revenues of $60 million last year. Investment in fixed capital was $12 million, and depreciation was $8 million. Working capital investment was $3 million. The company expects earnings before interest and taxes (EBIT), investment in fixed and working capital, depreciation, and sales to grow at 12% per year for the next five years. After five years, the growth in sales, EBIT, and working capital investment will decline to a stable 4% per year, and investments in fixed capital and depreciation will offset each other. The companys tax rate is 20%. Suppose that the weighted average cost of capital is 12% during the high growth stage and 8% during the stable stage. The calculation of FCFF in year 1 through year 5 is shown in the following table:

6 Year 0 1 2 3 4 Sales 60.00 BIT 20 IT(1-T) Depreciation CAPEX Change in working capital 12 8 12 3 FCFF Ln