1. You are provided with the last two years financial statements of a chain of fast food restaurant which is being evaluated as a takeover target by your client. You are asked to determine an appropriate price for the chain.

Based on the balance sheet and income statements and your own judgment you make the following assumptions:

1. The accounts receivable will be maintained as a faction of sales which is the average value estimated using the last two years financial statements.
2. Inventory will be maintained as a fraction of sales which is the average value estimated using the last two years financial statements.
3. Fixed assets will be maintained as a fraction of sales which is the average value estimated using the last two years financial statements.
4. Depreciation is 10% of the average fixed assets at costs.
5. Accounts payable and accrued expenses, and other current liabilities will be maintained as respective fractions of sales which are the average value estimated using the last two years financial statements.
6. Long-term debt is a fraction of sales which is the average value estimated using the last two years financial statements.
7. There will not be any new equity raised.
8. Sales are expected to grow at 30% for the next three years, 15% for the following 2 years, and thereafter it will stabilized at 5%.
9. Other income is expected to grow at 3%.
10. Cost of goods sold, and selling general and administrative expense are respective fraction of sales which are the average value estimated using the last two years financial statements.
11. The interest expense is approximate as 9% of the long-term debt which the interest income is 5% of the cash and cash equivalents.
12. Income tax rate will be 40%
13. Dividend payout ratio will be 15%.
14. The number of shares outstanding will be 2,000,000
15. The average asset b for firms in XYZ's industry is 1.20 and the average WACC is 15.52%
16. Estimate the following

i.Free Cash Flow

ii.Enterprise value

iii.Equity value

iv.Equity price per share

Year Current Assets Cash and cash equivalence Accounts receivables Inventory Total current Assets Property and equipment At cost Less accumulated depreciation Net property and equipment Total Assets Current Liabilities Accounts payable and accrued expenses Other current liability Total current liabilities Long term debt Stockholder's equity Common stock Retained Earnings Total Equity Total Liabilities and equity AI L: ll\":- Balance Sheet for Year 1 and Year 2 Y1 164,964 335,622 126,422 622,116 3,526,666 352,666 3,213,666 3,646,116 425,996 22,226 563,266 444,166 2,426,224 421,395 2,692,126 3,646,116 XYZ Inc. Income Statement for Year 1 and Year 2 Sales Sales Other Income Total Sales Dperating expenses Cost of products sold Depreciation Selling, general, and administrative expenses Interest expense Interest income Total Expenses Earnings before income taxes Income taxes 3,322,321 22,666 3,445,252 1,366,116 352,666 1 ,635,92 1 39,9 26 6,246 2,296,615 654,443 266,322 Y2 462,649 646,616 566,226 1,623,629 6,256,233 923,332 2,263,392 9,462,226 1,664,265 22,662 1,262,562 4,422,965 2,426,224 296,629 3,216,664 9,462,2 26 5,426,925 92,242 5,524,662 2,125,456 616,332 1,622,596 396,511 16,235 4,649,159 225,566 296,263