world's leading internet television network with over 117 million per day, including original series, documentaries and feature films. Our Short Answer Questions (40 points) Netfix, Inc. is the streaming memberships shows and movies members can watch as much as they want, anytime, an connected screen. Members ca n over 190 countries enjoying more than 140 million hours of Tv ywhere, on nearly any internet- n play, pause and resume watching all without commercials We began our international expansion with Canada in 2010 and have since launched our service globally 1. Use Netni v's 2017 Financial Statements to calculate the free cash flows for 2017 only. Be sure to account and amortization when calculating the free cash flows. Additionally, capital etlix include plant, property and equipment as well as content acquisition. Assume for depreciation net work 2020 and maintain a constant growth of 10% after 2020. The firm weighted average cost of capital of 15% what isthe VALUE OF THE FIRM (2018)? Note: Use ing capital needs will be u nchanged Assume free cash flows will growth 20% from 2018 to projects a 20% tax rate and a the WACC to discount CFs and the terminal value NOT (WACC-) (25 pts) 2. What is the VALUE OF THE FIRM'S EQUITY (2018)? (5 pts) 3. Although there are many firms competing with Netflix, Amazon is its largest independently owned competitor. While not perfect, Amazon's Enterprise Value-to-EBITDA ratio is 42.75. Based on provide a relative valuation of Netflix's EQUITY PER SHARE. (10 PTS) this info, Consolidated Statements of Cash Flows-USD (S) $ in Thousands 12 Months Ended Dec. 31,2017 Dec. 31,2016 Dec.31,2015 Cash flows from operating activitiest Net income 558,929 $186,678 $ 122,641 Adjustments to reconcile net income to net cash used in operating activities: Additions to streaming content assets Change in streaming content liabilities Amortization of streaming content assets Amortization of DVD content assets Depreciation and amortization of property equipment and intangibles (9,805,763) (8,653.286) 900,006 1,772,650 6,197,817 4,788,498 78,952 (5,771,652) 1,162,413 3.405,382 79,380 62,283 124,725 71,911 57,528 182209 173675 (65,121) 40,909 (208,688) (46,847) Stock-based compensation expense Excess tax benefits from stock-based compensation (80,471) Other non-cash items Deferred taxes 57,207 31,628 (S8,655) Cash flows from investing activities: Acquisitions of DVD content assets Purchases of property and equipment Other assets Purchases of short-term investments (53,720) (77,177) (173,302) (107,653) (941) (74,819) (187,193) 320,154 282,484 22,705 140,245 77958) 91248) (1,912) (371,915) 259,079 104,762 (6,689) Proceeds from sale of short-term investments Proceeds from maturities of short-term investments Net cash provided by (used in) investing activities34329 49,765(179,192) world's leading internet television network with over 117 million per day, including original series, documentaries and feature films. Our Short Answer Questions (40 points) Netfix, Inc. is the streaming memberships shows and movies members can watch as much as they want, anytime, an connected screen. Members ca n over 190 countries enjoying more than 140 million hours of Tv ywhere, on nearly any internet- n play, pause and resume watching all without commercials We began our international expansion with Canada in 2010 and have since launched our service globally 1. Use Netni v's 2017 Financial Statements to calculate the free cash flows for 2017 only. Be sure to account and amortization when calculating the free cash flows. Additionally, capital etlix include plant, property and equipment as well as content acquisition. Assume for depreciation net work 2020 and maintain a constant growth of 10% after 2020. The firm weighted average cost of capital of 15% what isthe VALUE OF THE FIRM (2018)? Note: Use ing capital needs will be u nchanged Assume free cash flows will growth 20% from 2018 to projects a 20% tax rate and a the WACC to discount CFs and the terminal value NOT (WACC-) (25 pts) 2. What is the VALUE OF THE FIRM'S EQUITY (2018)? (5 pts) 3. Although there are many firms competing with Netflix, Amazon is its largest independently owned competitor. While not perfect, Amazon's Enterprise Value-to-EBITDA ratio is 42.75. Based on provide a relative valuation of Netflix's EQUITY PER SHARE. (10 PTS) this info, Consolidated Statements of Cash Flows-USD (S) $ in Thousands 12 Months Ended Dec. 31,2017 Dec. 31,2016 Dec.31,2015 Cash flows from operating activitiest Net income 558,929 $186,678 $ 122,641 Adjustments to reconcile net income to net cash used in operating activities: Additions to streaming content assets Change in streaming content liabilities Amortization of streaming content assets Amortization of DVD content assets Depreciation and amortization of property equipment and intangibles (9,805,763) (8,653.286) 900,006 1,772,650 6,197,817 4,788,498 78,952 (5,771,652) 1,162,413 3.405,382 79,380 62,283 124,725 71,911 57,528 182209 173675 (65,121) 40,909 (208,688) (46,847) Stock-based compensation expense Excess tax benefits from stock-based compensation (80,471) Other non-cash items Deferred taxes 57,207 31,628 (S8,655) Cash flows from investing activities: Acquisitions of DVD content assets Purchases of property and equipment Other assets Purchases of short-term investments (53,720) (77,177) (173,302) (107,653) (941) (74,819) (187,193) 320,154 282,484 22,705 140,245 77958) 91248) (1,912) (371,915) 259,079 104,762 (6,689) Proceeds from sale of short-term investments Proceeds from maturities of short-term investments Net cash provided by (used in) investing activities34329 49,765(179,192)