We are in January 2019. A well-diversified equity fund is potentially interested in acquiring Happy and Grow (HAG), a privately-held firm. HAGs owners are asking $250 millionto sell their equity investmentin the firm. Based on the information and assumptions provided below, the fund manager would like to know whether the acquisition is a value-creating proposition for the fund.

BALANCE SHEETS December 31, 2017 and December 31, 2018 ($ millions)
ASSETS			LIABILITIES and EQUITY
	Dec. 2017	Dec. 2018		Dec. 2017	Dec. 2018
Cash (all excess cash)	20.00	20.00	Short-term Debt	10.00	15.00
Accounts Receivable	80.00	90.00	Accounts Payable	90.00	100.00
Inventories	100.00	110.00	Long-term Debt	85.00	80.00
Net Fixed Assets	100.00	110.00	Equity Capital	105.00	135.00
TOTAL	300.00	330.00	TOTAL	300.00	330.00

INCOME STATEMENT Year ending December 31, 2018 ($ millions)
Sales revenues	600.00
Cost of Goods Sold	480.00
Selling, Administrative & General Expenses	60.00
Depreciation expense	20.00
Interest expense	8.00
Tax expense (at a tax rate of 40%)	12.80
Net Income	19.20

Assumptions

1. The buyer is valuing EAC based on a target capital structurewith 40% debt financing(debt as a percentage of all funding) and a cost of debtof 8%and a cost of equityof 9.3%.

2. All cash-flows occur at the end of the calendar year.

Answer the following 5 questions:

1. (5points) What is the Free Cash Flow that HAG generated in 2018?

2. (2 points) What is HAGs WACC?

3. (9 points) If the HAG is under current management, the following performance parameters are expected:

For the years 2019 - 2023
Annual revenue growth		4%
EBIT margin		7%
Cash as a % of revenue		2%
WCR as a % of revenue		18%
NFA as % of revenue		18%
Conitnuing/Terminal value growth rate		2%

What is HAGs WACC? What is HAGs estimated enterprise value on December 31, 2018?

(Please show your calculation for FCFs, TV, and EV)

4. (3 points) What is HAGs estimated enterprise value on January 1st, 2019 if a similar company has generated a year-end EBITDA of $80 million in 2018 and had an estimated enterprise value of $416 million on January 1st, 2019? Compare your answer to the estimated enterprise value you found in the previous question.

5. (5 points) Is the acquisition a value-creating proposition for the fund? Explain your answer.