1. Using the attached financial statements for Firm ABC, calculate the value of equity (after subtracting the debt), according to the Free Cash Flow Model. To speed things up, the following are the components:

• Operating Cash Flow: $33,196
• Net Capital Spending: $9,200
• Change in NWC: $-600

The firm has 5,000 shares outstanding. In addition, you want to use WACC as your required return. The cost of debt is 9%, and the cost of equity is determined by the CAPM with a delevered/relevered beta. For the latter, you have the following information on your competitors. You may assume all have a 21% tax rate. The estimated risk-free rate is 2% and the MRP is 9%.

	Equity Beta	Debt-to-Equity
Competitor 1	1.1	.6
Competitor 2	1.6	.9
Competitor 3	1.4	1.1

You wish to assume the Sustainable Growth Rate (SGR) for the first three years, and then a terminal growth rate of 2% forever after. (20 pts)

Income Statement For the Year ending Dec. 31, 2019 Sales COGS Depreciation EBIT Interest Taxable income Taxes (21%) Net Income 89,000 49,000 7,600 32,400 2,500 29,900 6,279 23,621 Dividends Add to Retained Earnings 18,500 5,121 Assets 2018 2019 Current Assets Cash A/R Inventory Total Current Firm ABC Balance Sheet as of December 31, 2018 and 2019 Liabilities 2018 2019 Current Liabilities 8,500 7,800 A/P 2,600 3,500 N/P 5,000 3,000 Total Current 16,100 14,300 Long-Term Debt 32,400 34,000 Total Debt 48,500 48,300 Equity 6,500 8,200 14,700 9,000 4,500 13,500 7,800 22,500 14,000 27,500 Fixed Assets TOTAL ASSETS 24,000 15,679 Additional Paid in Capital and Common Stock Retained Earnings Total Equity 2,000 26,000 7,121 20,800 48,500 48,300 TOTAL LIABILITIES AND OWNERS EQUITY Income Statement For the Year ending Dec. 31, 2019 Sales COGS Depreciation EBIT Interest Taxable income Taxes (21%) Net Income 89,000 49,000 7,600 32,400 2,500 29,900 6,279 23,621 Dividends Add to Retained Earnings 18,500 5,121 Assets 2018 2019 Current Assets Cash A/R Inventory Total Current Firm ABC Balance Sheet as of December 31, 2018 and 2019 Liabilities 2018 2019 Current Liabilities 8,500 7,800 A/P 2,600 3,500 N/P 5,000 3,000 Total Current 16,100 14,300 Long-Term Debt 32,400 34,000 Total Debt 48,500 48,300 Equity 6,500 8,200 14,700 9,000 4,500 13,500 7,800 22,500 14,000 27,500 Fixed Assets TOTAL ASSETS 24,000 15,679 Additional Paid in Capital and Common Stock Retained Earnings Total Equity 2,000 26,000 7,121 20,800 48,500 48,300 TOTAL LIABILITIES AND OWNERS EQUITY