The owner of Big Boy Flea Market (BBFM), Lewis Redding, passed away on December 30, 2014. His 100% ownership interest in BBFM became part of his estate, on which his heirs must pay estate taxes. The IRS has hired a valuation expert, who has submitted a report stating that the business was worth approximately $20 million at the time of Reddings death. Reddings heirs believe the IRS valuation is too high and have hired you to perform a separate valuation analysis in hopes of supporting their position. Estimate the firm FCFs for 2015 to 2019, where the firms tax rate is 25%, capital expenditures are assumed to equal depreciation expense, and there are no changes in net working capital over the period. Value BBFM using the traditional WACC model and the following information: BBFMs cost of equity is estimated to be 20% and the cost of debt is 10%. BBFMs management targets its long-term debt ratio at 10% of enterprise value. After 2019, the long-term growth rate in the firms free cash flow will be 5% per year.

Corporate tax rate	25%
Capex (2010-2014) equals depreciation expense
Cost of debt financing	10%
Required return on equity	20%
Targed debt to value ratio	10%
Terminal period growth rate in FCFs	5%
	Base Year	Forecast
Income Statement	2014	2015	2016	2017	2018	2019
Sales	$ 3,417,500.00	$ 3,700,625.00	$ 3,983,750.00	$ 4,266,875.00	$ 4,550,000.00	$ 4,833,125.00
Depreciation		48,190.60	50,118.22	52,122.95	54,207.87	56,376.19
COGS		1,402,798.69	1,496,881.13	1,590,963.56	1,685,046.00	1,779,128.44
Other Operating Expenses		1,078,447.38	1,109,874.25	1,141,301.13	1,172,728.00	1,204,154.88
EBIT		$ 1,171,188.34	$ 1,326,876.40	$ 1,482,487.36	$ 1,638,018.13	$ 1,793,465.50
Interest		5,110.00	5,110.00	5,110.00	5,110.00	5,860.00
Earnings before Taxes		$ 1,166,078.34	$ 1,321,766.40	$ 1,477,377.36	$ 1,632,908.13	$ 1,787,605.50
Income Taxes		(291,519.58)	(330,441.60)	(369,344.34)	(408,227.03)	(446,901.38)
Net Income		$ 874,558.75	$ 991,324.80	$ 1,108,033.02	$ 1,224,681.10	$ 1,340,704.13