QUESTION 1

Washed Water, a technology manufacturer that produces water purification products for businesses, had net cash flows of $14 280 000 from operating activities in 2017. Dividends are $1 245 000. Inventory cost $11 645 000 in 2017, with equipment repairs and maintenance amounting to $ 1 445 000. Its 2016 free cash flow (FCF) is calculated as $ 5 135 000.

A) Calculate Washed Waters capital expenditure.

B) Washed Water is predicting its FCF next year (year 1) to be $ 5 000 000. The free cash flows are expected to grow by 7% each year. The company has a weighted average cost of capital of 16%. Ignoring the FCF from previous years, calculate the NPV of the companys future FCFs

Year 1 Year 2 Year 3

FCF

Terminal value

Total FCF value

NPV