QUESTION 11

1. Use the following information on Company Y for ultimately estimating the net present value of the expansionary investment and for answering the remaining questions.

   Consider the following forecasts for 2021-2025 of the Future Cash Flows, EBITDA and Future Interest Tax Shield for Company Y if the expansion were not to occur. Assume that the EBITDA Multiple for the industry Company Y belongs to is 9.

   Assume a discount factor of 8% for the Free Cash Flows and for the Continuation Value, and a discount factor of 5% for the Interest Tax Shield.

   TABLE: Valuation

   Firm Value	2021	2022	2023	2024	2025
   Free Cash Flow of Firm	21,000,110	24,125,326	26,062,385	28,154,758	30,414,839
   EBITDA					49,986,541
   Interest Tax Shield	17,500	17,500	17,500	17,500	17,500

   What is the Present Value (at December 2020) of the Free Cash Flows forecast for Corporation Y if the firm was not to do the expansion?

What is the Present Value (at December 2020) of the Continuation Value forecast for Corporation Y if the firm was not to do the expansion?

What is the estimated Firm Value (at December 2020) for Corporation Y if the firm was not to do the expansion?

Considering that the Firm Value for Corporation Y (at December 2020) if the firm was to do the expansion is estimated at $527,968,697. What is the Net Present Value of the investment expansion?

Answer True or False: According the NPV, Corporation Y should do the expansion."

True

False