You are an analyst valuing a potential acquisition target, Fractal Antenna Systems, Inc., a privately held company producing compact antennae. Your firm, Integrated, Inc., is a leading manufacturer of wind turbine blades. Integrated's WACC is 9.0 percent. Fractal's WACC is 14 percent, and the average of the two companies' WACCs, weighted by sales, is 11 percent. A. Estimate the present value of Fractal's free cash flow for the years 2018 to 2022. B. Estimate Fractal's firm value at the end of 2017 under the following terminal value scenario: Perpetual growth in free cash flow at 5% per year after 2022 C. Assuming Fractal has 60 million shares outstanding, what is the maximum price per share Integrated should pay to acquire Fractal's equity? FRACTAL ANTENNA SYSTEMS INC. INCOME STATEMENT (5 millions) Actual Forecast 2017 2018 2019 2020 $1,996 $2,267 $2,508 $2,827 742 830 959 1,352 1.525 1,678 492 785 1,301 171 178 191 175 212 239 270 306 86 186 126 61 5291 $197 $95 $52 Net sales Cost of sales Gross income Depreciation Interest expense Operating expenses Net income before tax Provision for taxes Net income after tax 1,061 2021 $3,138 1.087 2.051 1.009 142 334 566 221 $345 2022 $3,571 1.241 2.330 917 110 374 477 323 156 929 $566 $618 354 5.149 Cash and securities Accounts receivable Inventory Other current assets Total current assets Gross property and equipment Accumulated depreciation Net property and equipment Goodwill Total assets Accounts payable Short-term debt Current portion long-term debt Accrued expenses Total current liabilities Long-term debt Deferred taxes Shareholders' equity Total liabilities and equity $545 309 629 167 1.650 7.449 4,015 3,434 1,069 6,153 239 212 1.923 8.200 9,024 3,176 1.069 6.168 117 585 223 $704 405 864 206 2.179 9,016 5,941 3.075 1.069 6.323 135 393 267 168 963 699 496 4,165 $6,323 110 BALANCE SHEET (5 millions) $358 $413 $462 208 236 267 399 463 541 156 122 142 1.121 1,234 1,412 4,180 6,410 868 2.714 3,312 3,495 3,696 1.069 1.069 1,069 5.502 5,798 6,177 104 77 91 335 842 41 140 165 86 97 120 566 796 1,218 1.694 1,554 1,389 335 370 2,907 3,104 3.200 SS.502 55,798 S6,177 FCFF 501 347 39.0% 39.1% 306 211 785 1,061 1,261 1,060 1,201 129 (7) (130) 814 200 1.258 1.189 454 3,252 $6,153 1.099 966 505 3,598 56,168 708 39.0% 1,039 39.1% Earnings before interest and taxes Totale EBIT-tax rate) Depreciation Capital expenditures Working capital Change in working capital Free cash flow 261 39.5% 158 1,301 1,039 1,406 205 215 1,009 751 1.632 226 917 816 1,876 244 490