Problem #1 (1) Use the following income statements and balance sheets to calculate Garnet Inc.'s free cash flow for 2011. 2011 2010 Income Statement Net sales $530.0 $500.0 400.0 380.0 30.0 25.0 $430.0 100.0 $405.0 95.0 Costs (except depreciation) Depreciation Total operating costs Earnings before interest and taxes (EBIT) Less interest Earnings before taxes Taxes (40%) Net income 23.0 21.0 $ 77.0 $ 74.0 29.6 30.8 $ 46.2 $ 44.4 Balance Sheet 2011 2010 Assets Cash $ 28.0 $ 27.0 Marketable securities 69.0 66.0 Accounts receivable 84.0 80.0 112.0 106.0 $293.0 $279.0 281.0 265.0 Inventories Total current assets Net plant and equipment Total assets Liabilities and Equity Accounts payable Notes payable $574.0 $544.0 $ 56.0 $ 52.0 138.0 130.0 Accruals 28.0 28.0 $222.0 $210.0 173.0 164.0 100.0 Total current liabilities Long-term bonds Common stock Retained earnings Common equity Total liabilities and equity 100.0 79.0 70.0 $179.0 $170.0 $574.0 $544.0 Problem#2 EMC Corporation has never paid a dividend. Its current free cash flow of $400,000 is expected to grow at a constant rate of 5%. The weighted average cost of capital is WACC = 12%. Calculate EMC's value of operations. Problem#3 Current and projected free cash flows for Radell Global Operations are shown below. Growth is expected to be constant after 2012, and the weighted average cost of capital is 11%. What is the horizon (continuing) value at 2012? Actual Projected 2010 2011 2012 2013 Free cash flow (millions of dollars) $606.82 $667.50 $707.55 $750.00