SAXTON COMPANY

Income Statement

For the Year Ended December 31, 2009

Sales (all on credit) ..................................................................... $ 4,000,000

Cost of Goods Sold...........................................................................3,000,000

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Gross Profit.....................................................................................$ 1,000,000

Selling and Administrative Expenses...........................................450,000

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Operating Profit ..............................................................................$550,000

Interest Expense..............................................................................50,000

Extraordinary Loss............................................................................200,000

Earnings Before Taxes.....................................................................$300,000

Income Taxes (33%).........................................................................100,000

Net Income........................................................................................$ 200,000

SAXTON COMPANY

Balance Sheet

As of December 31, 2009

Assets

Cash....................................................................................... $30,000

Accounts Receivable...........................................................350,000

Marketable Securities ........................................................50,000

Inventory...............................................................................370,000

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Total Current Assets............................................................. $ 800,000

Net Plant and Equipment.....................................................800,000

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Total Assets............................................................................$ 1,600,000

Liabilities and Stockholders' Equity

Accounts Payable....................................................................$50,000

Notes Payable..........................................................................250,000

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Total Current Liabilities...........................................................$ 300,000

Long Term Liabilities.................................................................. 300,000

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Total Liabilities ..........................................................................$ 600,000

Common Stock............................................................................ 400,000

Retained Earnings....................................................................... 600,000

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Total Stockholders' Equity.......................................................$ 1,000,000

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Total Liabilities and Stockholders' Equity.............................. $ 1,600,000

Based upon the Saxton Company (financials), assume that Net Income is a Perpetuity.Then for the Saxton Company:

1. Using Net Income as a Perpetuity, determine a (Present) Value for the Saxton Company assuming that ROE is the % Discount Rate (i.e. % Required Rate of Return)

2.Determine the Weighted Average Cost of Capital (WACC), where ROE can be viewed as the Cost of Equity (component) and the Cost of Debt can be determined by dividing the Interest Expense by the Total Debt

3.Using Net Income as a Perpetuity, determine a (Present) Value for the Saxton Company (now) assuming that the WACC is the Discount Rate (i.e.% Required Rate of Return).