Question 10 (20 points) The All Boats Company (ABC) is an importer of outboard motors for boats. The CEO asked you to calculate the value of the firm today. For your calculation, you decide the cash flow from the most recent year will repeat exactly, for the next 3 years in to the future (the first forecasted cash flow occurs 1 year from today). You also assume the firm will close after year 3, not getting any extra cash flow and thus having no terminal value. The financial details for each of the next 3 years is given here: EBIT: $12,000,000 per year Marginal tax rate: 35% each year Depreciation: $500,000 per year CAPEX: $1,000,000 per year Change in net working capital: +$5,000,000 per year Cost of capital (r): 10% each year a) (10 points) What is the present value of this free cash flow? b) (10 points) Now the CEO asks you to do one more calculation. This time, all the financials are the same, except for the second year your inventory is $1M less than (a). The first and third years are the same as (a). Thus the change in NWC is different in part (b). What is the present value of this new free cash flow situation? Question 10 (20 points) The All Boats Company (ABC) is an importer of outboard motors for boats. The CEO asked you to calculate the value of the firm today. For your calculation, you decide the cash flow from the most recent year will repeat exactly, for the next 3 years in to the future (the first forecasted cash flow occurs 1 year from today). You also assume the firm will close after year 3, not getting any extra cash flow and thus having no terminal value. The financial details for each of the next 3 years is given here: EBIT: $12,000,000 per year Marginal tax rate: 35% each year Depreciation: $500,000 per year CAPEX: $1,000,000 per year Change in net working capital: +$5,000,000 per year Cost of capital (r): 10% each year a) (10 points) What is the present value of this free cash flow? b) (10 points) Now the CEO asks you to do one more calculation. This time, all the financials are the same, except for the second year your inventory is $1M less than (a). The first and third years are the same as (a). Thus the change in NWC is different in part (b). What is the present value of this new free cash flow situation