The Henley Corporation is a privately held company specializing in lawn care products and services. The most recent financial statements are shown below.
Income Statement for the Year Ending December 31 (Millions of Dollars)
	2012
Net Sales	$ 800.0
Costs (except depreciation)	$ 576.0
Depreciation	$ 60.0
Total operating costs	$ 636.0
Earning before int. & tax	$ 164.0
Less interest	$ 32.0
Earning before taxes	$ 132.0
Taxes (40%)	$ 52.8
Net income before pref. div.	$ 79.2
Preferred div.	$ 1.4
Net income avail. for com. div.	$ 77.9
Common dividends	$ 31.1
Addition to retained earnings	$ 46.7
Number of shares (in millions)	10
Dividends per share	$ 3.11
Balance Sheets for December 31 (Millions of Dollars)
Assets	2012		Liabilities and Equity		2012
Cash	$ 8.0		Accounts Payable		$ 16.0
Marketable Securities	20.0		Notes payable		40.0
Accounts receivable	80.0		Accruals		40.0
Inventories	160.0		Total current liabilities		$ 96.0
Total current assets	$ 268.0		Long-term bonds		$ 300.0
Net plant and equipment	600.0		Preferred stock		$ 15.0
Total Assets	$ 868.0		Common Stock (Par plus PIC)		$ 257.0
			Retained earnings		200.0
			Common equity		$ 457.0
			Total liabilities and equity		$ 868.0
Projected ratios and selected information for the current and projected years are shown below.
Inputs	Actual	Projected	Projected	Projected	Projected
	2012	2013	2014	2015	2016
Sales Growth Rate		15%	10%	6%	6%
Costs / Sales	72%	72%	72%	72%	72%
Depreciation / Net PPE	10%	10%	10%	10%	10%
Cash / Sales	1%	1%	1%	1%	1%
Acct. Rec. / Sales	10%	10%	10%	10%	10%
Inventories / Sales	20%	20%	20%	20%	20%
Net PPE / Sales	75%	75%	75%	75%	75%
Acct. Pay. / Sales	2%	2%	2%	2%	2%
Accruals / Sales	5%	5%	5%	5%	5%
Tax rate	40%	40%	40%	40%	40%
Weighted average cost of capital (WACC)	10.5%	10.5%	10.5%	10.5%	10.5%
a. Forecast the parts of the income statement and balance sheets necessary to calculate free cash flow.
Partial Income Statement for the Year Ending December 31 (Millions of Dollars)
	Actual	Projected	Projected	Projected	Projected
	2012	2013	2014	2015	2016
Net Sales	$ 800.0	$ 920.0	$ 1,012.0	$ 1,072.7	$ 1,137.1
Costs (except depreciation)	$ 576.0	$ 662.4	$ 728.6	$ 772.4	$ 818.7
Depreciation	$ 60.0	$ 69.0	$ 75.9	$ 80.5	$ 85.3
Total operating costs	$ 636.0	$ 731.4	$ 804.5	$ 852.8	$ 904.0
Earning before int. & tax	$ 164.0	$ 188.6	$ 207.5	$ 219.9	$ 233.1
Partial Balance Sheets for December 31 (Millions of Dollars)
	Actual	Projected	Projected	Projected	Projected
Operating Assets	2012	2013	2014	2015	2016
Cash	$ 8.0	$ 9.2	$ 10.1	$ 10.7	$ 11.4
Accounts receivable	$ 80.0	$ 92.0	$ 101.2	$ 107.3	$ 113.7
Inventories	$ 160.0	$ 184.0	$ 202.4	$ 214.5	$ 227.4
Net plant and equipment	$ 600.0	$ 690.0	$ 759.0	$ 804.5	$ 852.8
Operating Liabilities
Accounts Payable	$ 16.0	$ 18.4	$ 20.2	$ 21.5	$ 22.7
Accruals	$ 40.0	$ 46.0	$ 50.6	$ 53.6	$ 56.9
b. Calculate free cash flow for each projected year. Also calculate the growth rates of free cash flow each year to ensure that there is constant growth (i.e., the same as the constant growth rate in sales) by the end of the forecast period.
	Actual	Projected	Projected	Projected	Projected
Calculation of FCF	2012	2013	2014	2015	2016
Operating current assets	248.0	285.2	313.7	332.5	352.5
Operating current liabilities	56.0	64.4	70.8	75.1	79.6
Net operating working capital	192.0	220.8	242.9	257.5	272.9
Net PPE	600.0	690.0	759.0	804.5	852.8
Net operating capital	792.0	910.8	1,001.9	1,062.0	1,125.7
NOPAT	98.4	113.2	124.5	131.9	139.9
Investment in operating capital	na	118.8	91.1	60.1	63.7
Free cash flow	na	(5.6)	33.4	71.8	76.1
Growth in FCF	na	na	na	115.1%	6.0%
Growth in sales		15.0%	10.0%	6.0%	6.0%
d. Calculate the value of operations and MVA. (Hint: first calculate the horizon value at the end of the forecast period, which is equal to the value of operations at the end of the forecast period. Assume that the annual growth rate beyond the horizon is 6 percent.)
	Actual	Projected	Projected	Projected	Projected
	2012	2013	2014	2015	2016
Free cash flow		(5.6)	33.4	71.8	76.1
Long-term constant growth in FCF					6.0%
Weighted average cost of capital (WACC)	10.5%	10.5%	10.5%	10.5%	10.5%
Horizon value					_____
FCF in Years 1-3 and FCF4 + horizon value in Year 4		(5.6)	33.4	71.8
Value of operations (PV of FCF + HV)	______
Operating capital (sum of net operating working capital and net PPE)	_______
Market value added (MVA=Market value of company - book value of company = Value of operations - Operating capital)	________
e. Calculate the price per share of common equity as of 12/31/2012.
	Actual
	2012
Value of Operations	_____
Plus Value of Mkt. Sec.	_____
Total Value of Company	_____
Less Value of Debt	_____
Less Value of Pref.	_____
Value of Common Equity	_____
Divided by number of shares	_____
Price per share	_____